The USD is getting a tailwind from a rise in the 2 year Treasury, to its highest since March last year, circa 0.307%
USD carrying on higher against yen. Also up vs. AUD, EUR and some others.
USD/JPY above 111.10.
Heavy selling in bonds
US 10 year yields are surging.
They’re now up 7.7 bps on the day to 1.4078%. It’s the first trip above 1.40% since mid-July and breaks a quadruple top ahead of the level.
Initially, the bond market was trading like the Fed taper was a policy mistake as long end rates fell yesterday. However it’s all turning around today as less Fed buying plus the fear of inflation plus great risk sentiment life bonds.
The risk now is that a negative feedback loop starts for stocks. Tech in particular has been sensitive to higher rates.
In FX, the US dollar is beginning to fight back in the last 10 minutes on rate differentials. Note though that global bonds are generally moving in tandem with US rates.
Key line from Powell
The reversal in the dollar came after Powell said no decisions on the taper had been taken but added this:
“A gradual tapering process that concludes around the middle of next year is likely to be appropriate”
That would imply a $20B taper beginning around December. It’s the strongest guidance received so far and it’s a hawkish surprise that he would offer somewhat clear guidance on that before it was necessary.
Treasury yields have moved up on that comment and pulled the dollar upwards.
Crude oil lower. Dollar buying. Yields higher. Stocks lower.
The USDCAD is moving to a new week high as crude oil moves lower, the dollar moved higher as yields move higher and stocks move lower. The combination is a negative for the CAD and a positive for flights into the USD.
The pair is currently up testing the September 9 high price of 1.27269 after moving above its 50% retracement at 1.27204 of the move down from the August 20 high to the September 3 low. A move above 1.27269, opens the door for a move toward the September 8 high at 1.27607. 61.8% retracement of the move down comes in at 1.27742.
The swing high from Wednesday at 1.270781 is now a risk level. Stay above is more bullish
Dollar buying as yields move higher and stocks move lower
The EURUSD it is testing the lows for the week reached yesterday at 1.1750 as US yields move higher and stocks move lower. The NASDAQ index and S&P index are now down -0.54%. The 10 year yield is up 3.9 basis points at 1.3700%.
The pair is now below the 61.8% retracement at 1.1757. The next targets are the swing lows from August 27 at 1.1742 and 1.17346. Below that the the pair will target the swing area between 1.1723 and 1.17264.
EUR/USD down 40 pips on the day to 1.1775
The dollar isn’t overwhelmingly strong in European trading but there is an evident push lower in EUR/USD over the past few hours as the pair slides from 1.1810 to 1.1775 and is marked down by 40 pips on the day now.
There isn’t any major catalyst for the move but this ties to more of a push and pull as seen in recent days as sellers now keep near-term control of the pair.
Price action is keeping below both key hourly moving averages so the near-term bias favours sellers but there is support from the Monday low @ 1.1770.
But a daily break below that and the 50.0 retracement level @ 1.1786 sets the stage for an added drop perhaps towards 1.1700 next. Besides a couple of technical considerations as pointed out above, there isn’t much else for traders to work with.
The dollar continues to look more choppy overall but standing its ground in light of any short-term weakness as the Fed’s taper narrative continues to offer some tailwind for the currency going into next week’s FOMC meeting.
I mean we already saw that sort of conviction already after the US CPI report, in which the drag on the dollar was a rather brief one by all accounts.
The push and pull continues for USD/JPY
The pair is down from 110.20 earlier to 110.00 now as risk sentiment leans towards the softer side to start European morning trade.
Quieter tones prevail once again so far on the day
That said, risk sentiment is still rather soggy and that may fuel a bit more of a defensive tone as we look towards the start of European trading later.
While FX is keeping in tighter ranges, US futures are down roughly 0.3% with 10-year Treasury yields keeping around 1.33% after the drop yesterday.
There was quite a bit of push and pull in the dollar overnight and that may yet keep the course as the market sorts itself out on the week. For today though, the ECB policy meeting will be a key risk event to watch for any moves.
EUR/USD is keeping around 1.1815-20 following the drop yesterday, with the 1.1800 level still holding though sellers are maintaining near-term control for now.