US Dollar, US Real Rates, US Treasury Bill Yields, Federal Reserve, DXY – Talking Points:
- Assets at risk have increased during APAC trading due to the positive developments of the coronavirus vaccine.
- Falling US real yields could stifle the greenback’s recent rally.
- However, a lack of concern on the part of the Federal Reserve about rising yields could put a new wind USDSails.
Risk assets rose during Asia-Pacific trade as relentless sales in global markets slowed and President Joe Biden announced that the United States would have enough coronavirus vaccines by the end of the month of May. Australia ASX 200 increased by 0.82% thanks to Better than expected fourth quarter GDP figures, while Japan Nikkei 225 pushed 0.51% higher.
Hong Kong’s Hang Seng Index climbed 2.45% and China’s CSI 300 climbed 1.78%. In the foreign exchange markets, Canadian dollar and the Norwegian krone outperformed, while the Japanese yen lost ground. Gold and money price fell as 10-year US Treasury yields climbed just under 2 basis points.
Looking ahead, a wave of PMI figures from Germany and the euro-area topped the economic bill alongside ADP employment figures in the United States.
USD rebound fades as bond selling cools
The US Dollars rebounded vigorously against its major counterparts late last month, as a rout in global bond markets put a premium on the safe haven currency. Yields on 10-year US Treasuries rose 49 basis points, while 30-year rates climbed 52 basis points. At the same time, inflation expectations have come down, opening the door for real rates of return to storm to the highest levels since June 2020.
However, this upward movement in real yields has proven to be relatively short-lived and may ultimately lead the greenback to give up some gained ground in the short term. That being said, a lot will depend on comments from several members of the Federal Reserve, as market participants examine whether the central bank is concerned about the recent U.S. Treasuries rout.
Data source – Bloomberg
Federal Reserve Bank of Richmond Chairman Thomas Barkin seemed relatively unfazed by the relentless rise in long-term yields, saying that “if the engine [behind the move] is vaccine news, or economic health news, or fiscal stimulus news, so I think that’s a natural reaction.
Attention now turns to President Jerome Powell’s upcoming speech on Thursday, with a lack of consideration around the bond markets likely to send higher yields, and in turn strengthening the US dollar. On the other hand, any mention of controlling the yield curve or increasing the pace of the central bank’s bond buying program could fuel inflows into Treasury markets and undermine the greenback against its mainstreams. counterparts.
Daily U.S. Dollar Index (DXY) Chart – Upward Potential for Descending Channel Capping
DXY daily chart created using Tradingview
From a technical standpoint, the outlook for the US Dollar Index (DXY) remains biased downward as prices continue to follow within a descending channel.
However, the recent surge above the trend-setting 55-EMA (90.74) could open the door for the index to retest the 100-MA and monthly high (91.39).
Nonetheless, with the MACD tracking in negative territory and the range resistance at 90.95 – 91.15 holding firm, a prolonged bullish move seems relatively unlikely.
A daily close below the 34-EMA (90.59) would likely neutralize short-term buying pressure and set a path for prices to challenge the February low (89.68). Hurdles which brings the annual low (89.21) in the crosshairs.
– Written by Daniel Moss, Analyst for DailyFX
Follow me on twitter @DanielGMoss
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