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After the US CPI data on Tuesday, the dollar ran hot and was strongly bid across the board as both stocks and bonds fell. But since then, there was no real follow through and not surprisingly so I would say. As mentioned here, the next leg higher for the dollar might be tougher to come by and the bond market needs to play ball as well.

And in the last two days, that hasn’t quite been the case. 10-year Treasury yields are now down to 4.226% as compared to the post-CPI high of 4.316%. That is inviting key questions on the dollar’s supposed break higher this week. Let’s take a look.

  1. EUR/USD is now trading back to 1.0735, above its December low of 1.0723. Is the break lower on Tuesday a fake out?
  2. USD/JPY jumped above 150.00 for the first time since November last year. However, it is struggling to keep at it as price now falls back to test the figure level today. Can buyers hold their ground?
  3. USD/CAD looked like it shook off the January high of 1.3542 to break out of range. But it is now falling back towards that range alongside a failed push above its 100-day moving average, seen at 1.3556 currently. Are sellers going to seize more control from here on?
  4. Gold fell back below the $2,000 mark for the first time in two months. However, buyers are holding on at the 100-day moving average seen at $1,990.86 currently. Are we setting up for a rebound or are dollar bulls going to try for another push lower?

Those are some juicy technical considerations and it all hinges on what the bond market does next too. 10-year yields broke above the range between 3.80% and 4.20% on the CPI data this week. But if we are to see yields fall back into that range after the slew of US data today, that will be a major setback for dollar bulls.

If so, expect that to provide a tailwind for risk trades – which have already started an early rebound in trading yesterday.

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