USD/DXY Grinds Higher, US 10-Year Bond Yield Hits Three-Year Peak

Michael Moran, Senior Currency Strategist at ACY

11.04.2022 01:45 pm

#stocks

GBP/USD Pounded to 18-month Low, Euro Steadies, AUD/USD Dips

Summary: The benchmark US 10-Year Treasury yield soared to a March 2019 high at 2.7% on Friday up from its opening at 2.66%. Two-year US bond rates rose 5 basis points to 2.51%. This boosted the Dollar Index (USD/DXY), which gauges the value of the Greenback against a basket of 6 major currencies to finish at 99.78 (99.75 Friday). In overnight trade, the USD/DXY hit a June 2020 high at 100.15 before dipping at the New York close. Against the Japanese Yen, the Greenback rallied to settle at 124.08 from Friday’s opening at 123.95. The EUR/USD pair steadied, rebounding to 1.0910 in early Asia after trading to an overnight and one-month low at 1.0847. Over the weekend, the French presidential election polls showed that incumbent Emmanuel Macron was leading challenger Marine Le Pen, which supported the Euro. The British Pound (GBP/USD) tumbled to an overnight and 18-month low at 1.2982 from its opening at 1.3075 before settling at 1.3040. Antipodean currencies fell against the Greenback. The Australian Dollar (AUD/USD) edged lower to 0.7460 from 0.7480 (Friday) after hitting 3-week lows at 0.7441 overnight. The Kiwi (NZD/USD) tumbled to 0.6850 from 0.6895. Against the Asian and Emerging Market Currencies, the US Dollar gained overall. USD/SGD (US Dollar-Singapore Dollar) edged higher to 1.3620 from 1.3610. The USD/CNH pair (US Dollar-Offshore Chinese Yuan) rallied to 6.3700 (6.3630). Other global treasury yields rose, but not to the extent of their US counterparts. Germany’s 10-Year Bund Yield was last at 1.75% (1.73% Friday). The UK 10-year bond rate closed at 1.75% from 1.73% on Friday.
Wall Street stocks finished mixed. The DOW ended 0.45% higher to 34,735 (34,585) while the S&P 500 closed 0.24% lower to 4,491 from 4,503.
Data released on Friday saw Japan’s Current Account Surplus climb to +JPY 0.52 trillion from a previous +JPY 0.19 trillion, and higher than forecasts of +JPY 0.27 trillion. Japan’s Consumer Confidence Index eased to 32.8 from 35.3, missing estimates at 36.9. Japanese Economic Watchers Sentiment Index rose to 47.8 from 37.7, and higher than expectations at 45.0. Italy’s Retail Sales (m/m) rose 0.7%, bettering estimates at 0.5%. Canada’s economy created 72,500 jobs March, lower than median estimates at 77,500. Canada’s Unemployment Rate eased to 5.3% from 5.4%. US Final Wholesale Inventories rose to 2.5% from a previous 2.1%.

EUR/USD – The Euro found some respite after traders pushed it to an overnight and one-month low at 1.0847, rebounding to settle at 1.0910. In early Asia, the French presidential elections showed Emmanuel Macron with a slim lead in the polls over rival Marine Le Pen which was supportive of the shared currency.
GBP/USD – The Pound is sinking, echoes of Paul McCartney’s 1982 tune from his 1982 album Tug of War. The British currency tumbled under the weight of broad-based US Dollar strength and expectations of a more aggressive Federal Reserve. By contrast, traders view the Bank of England as less aggressive than its global counterparts in tightening rates. Overnight GBP/USD tumbled to a low at 1.2982, lows not seen since late 2020. GBP/USD rebounded in late New York and closed at 1.3040.
AUD/USD – After climbing most of last week, the Australian Dollar edged lower finishing at 0.7460 from Friday’s open at 0.7480. Higher US bond yields which saw the USD/DXY lift to its highest level since May 2020 (100.15) weighed on the Aussie Battler. The AUD/USD pair traded to an overnight and near 3-week low at 0.7441.
USD/JPY – the Greenback soared to an overnight and near 2-week high at 124.67 before settling in early Asia to 124.37. Rising US bond yields continue to support this currency pair which looks headed to a 2022 high at 125.10. Overnight low traded was at 123.98.

On the Lookout: Today’s economic calendar is light ahead of a busy week heading into the Easter break (next weekend). New Zealand releases its Electronic Card Spending data for March (m/m f/c -0.6% from -7.8%; y/y f/c 9.7% from 1.1%). China kicks off Asia with its March CPI report (m/m f/c -0.1% from a previous 0.6%; y/y f/c 1.3% from 0.9%), Chinese March PPI (y/y f/c 8.1% from a previous 8.8%). The UK rounds up the day’s calendar with its UK February Goods Trade Balance (forecasts range from -GBP 16.8 billion to -GBP 20.07 billion); UK February GDP (m/m f/c 0.3% from 0.8% - ACY Finlogix); UK February Industrial Production (m/m f/c 0.3% from 0.7%; y/y f/c 2.1% from 2.3% - ACY Finlogix); UK February Manufacturing Production (m/m f/c 0.3% from 0.8%; y/y f/c 3% from a previous 3.6% -ACY Finlogix). There are no major economic data releases from the U.S.

Trading Perspective: Rising US bond yields on the back of an increasingly hawkish Federal Reserve outlook for interest rates, ongoing geopolitical risks and yet-to-be known results of France’s general elections continue to bolster the Greenback. Upcoming data releases amidst a shortened week where FX liquidity will thin out towards Easter are what traders will be looking out for. Today kicks off with Chinese CPI and PPI data which will impact the Australian Dollar. Later in the day, the UK releases its GDP, Trade Balance, Manufacturing, and Industrial Production data. Overnight the British currency slumped to its lowest level since November 2020. Sterling traders will be watching the data and any weak surprises for the UK economy will see further pounding of the UK currency. The Dollar Index (USD/DXY) jumped to an overnight and June 2020 high at 100.15 before easing to settle at 99.78. While the Dollar should stay bid, a shortened trading week amidst thinning liquidity could see choppy trade as Dollar longs adjust or pare their positions.

EUR/USD – despite managing to rebound above the 1.0900 resistance level (1.0908), the shared currency is still vulnerable to further declines. Despite the rebound, the shared currency looks headed for its next support at the 1.0800 level. Overnight low traded was at 1.0847. For today, immediate support lies at 1.0880 followed by 1.0850 and 1.0820. Immediate resistance can be found at 1.0950 (overnight high traded was 1.0947). Look for the Euro to trade a likely range of 1.0840-1.0940. We may have seen the corrective bounce for now. Look to sell rallies.
USD/JPY – the yield sensitive Japanese Yen continued its decline versus the Greenback. The Dollar hit a hit at 124.40 before easing to close at 124.08. In contrast to the rising 10-year US bond yield, Japan’s 10-year JGB rate was unchanged at 0.22%. Look for the USD/JPY pair to stay supported in a likely range today of 123.80-124.80. The next target is the 125.00 level.
AUD/USD – slip sliding away. After climbing last week to a 2022 and June 2021 high at 0.7661, traders smacked the Aussie Battler lower. The AUD/USD pair opened at 0.7480 on Friday, traded to an overnight low at 0.7441 before rallying to finish in New York at 0.7460. Overnight high traded was at 0.7513. For today, immediate resistance is found at 0.7485 followed by 0.7515. Immediate support lies at 0.7440, 0.7410 and 0.7380. Look for a likely trading range today of 0.7420-0.7520. The downward drift continues.
GBP/USD – the British Pound managed to rebound off its overnight lows to finish at 1.3040 in New York. Overnight low traded was at 1.2982. On the day, immediate support can be found at 1.3010, 1.2980 and 1.2950. On the topside, immediate resistance lies at 1.3080, 1.3110 (overnight high traded was at 1.3107). The next resistance level is at 1.3140. Look for a likely range in Sterling today between 1.2985 to 1.3085. Preference is to sell rallies.

(Source: Finlogix.com)

Happy Monday, have a good trading week ahead all.

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