· Dollar claws back losses as U.S. bond yields stabilize
The U.S. dollar rose on Wednesday, clawing back some of the losses sustained overnight, as U.S. yields found a floor following their drop from one-year highs.
Riskier currencies including the Australian and New Zealand dollars retreated after logging big gains on Tuesday. Bitcoin turned lower after earlier topping $55,000 for the first time since Feb. 22.
The euro was 0.2% lower at $1.18815 after bouncing off a 3-1/2-month low of $1.18355 on Tuesday.
Against the yen, another traditional safe-haven currency, the greenback traded 0.3% higher at 108.780 yen, following its retreat from a nine-month top of 109.235.
“Yesterday, the dollar fell across the board as U.S. Treasury yields slipped after the continued rise since the beginning of this year. This morning, the yields have stopped falling so those who missed out on buying the dollar when it was rising, they saw the opportunity to buy it,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities.
But he added, “the rebound in the dollar is not that big today.”
The dollar index has closely tracked a surge in Treasury yields in recent weeks, both because higher yields increase the currency’s appeal and as the bond rout shook investor confidence, spurring demand for the safest assets.
The benchmark 10-year Treasury yield stabilized around 1.54% on Wednesday in Asia after a three-day drop from a one-year high of 1.6250%.
The dollar index strengthened about 0.2% to 92.147 in Asia on Wednesday, after falling back sharply from a 3-1/2-month high of 92.506 overnight.
Many analysts still expect the dollar to weaken over the course of this year, but the speed of recent gains has forced some to adjust their views.
Westpac, which last week was talking about selling the dollar index into 91, now sees it reaching as high as 94.50 before resuming last year’s downtrend as the rest of the world closes the gap with the U.S. economic recovery.
“A continuation of the global recovery ... should see commodity currencies outperform.”
The Aussie dropped 0.4% to $0.7684 after jumping 1% overnight, as a top central banker rebuffed market chatter about early rate increases, helping pull local yields lower.
New Zealand’s kiwi slipped 0.4% to $0.7146 following a 0.8% increase on Tuesday.
· US Dollar Index resumes the upside above 92.00, looks to CPI
The greenback partially reverses Tuesday’s pullback and regains some upside traction, always above the 92.00 mark when gauged by the US Dollar Index (DXY).
US Dollar Index looks to data, yields
The index trades back on the positive territory and trim part of Tuesday’s losses on the back of the recovery in US yields.
In fact, yields of the US 10-year Treasuries now moved into a consolidative phase above 1.50% following tops beyond the 1.60% level in past sessions. Investors, in the meantime, are expceted to closely follow the upcoming release of inflation figures for the month of February, due later in the NA session.
On the broader space, the US outperformance narrative continues to lend support to the buck, all sustained by the solid pace of the vaccine rollout and prospects of higher US fiscal stimulus.
Additional data will show the weekly Mortgage Applications by MBA, the EIA’s report on crude oil inventories as well as a 10-year Note Auction.
What to look for around USD
The overall sentiment in the dollar remains firm and pushed the index to new YTD highs in the mid-92.00s earlier in the week. The recent change of heart in the buck came in tandem with the strong bounce in US yields to levels recorded over a year ago, all against the backdrop of rising investors’ perception of higher inflation in the next months. However, a sustainable move higher in DXY should be taken with a pinch of salt amidst the mega-accommodative stance from the Fed (until “substantial further progress” is seen), extra fiscal stimulus and hopes of a strong economic recovery overseas.
Key events in the US this week: Inflation figures measured by the CPI (Wednesday) – Initial Claims (Thursday) – Flash February Consumer Sentiment (Friday).
Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating? Future of the Republican party post-Trump acquittal.
US Dollar Index relevant levels
At the moment, the index is gaining 0.28% at 92.21 and a breakout of 92.50 (2021 high Mar.9) would expose 92.85 (200-day SMA) and finally 94.30 (monthly high Nov.4). On the other hand, the next support emerges at 91.19 (100-day SMA) seconded by 91.05 (high Feb.17) and then 90.61 (50-day SMA).
· EUR/USD drops towards 1.1850 amid dollar’s rebound, ahead of US CPI
EUR/USD extends losses towards 1.1850 heading into early European trading. Resurgent US dollar demand amid stabilizing Treasury yields and risk-off mood weigh on the spot. Focus shifts to the US CPI and stimulus vote.
Euro/dollar is suffering from downside momentum on the four-hour chart and trades below the 50, 100 and 200 Simple Moving Averages. Moreover, the Relative Strength Index has risen above the 30 level – exiting oversold conditions.
Bears are in full control.
Support awaits at the daily low of 1.1868, followed by the 2021 trough of 1.1836. A weak cushion awaits at 1.1815, with stronger support at 1.18 – a psychologically significant level, followed by 1.1750. All were in play in late 2020.
Some resistance is at the daily high of 1.1902, followed by 1.1915, Tuesday's high point. It is followed by 1.1950 and 1.1990.
· GBP/USD under pressure around 1.3850 amid risk-off mood
GBP/USD wavers in a choppy range above 1.3850 following early Asian losses. The risk sentiment dwindles ahead of US stimulus news and amid fears of covid resurgence due to the re-opening of the UK economy.
OVERVIEW
Today last price 1.3865
Today Daily Change -28 pips
Today Daily Change % -0.20%
Today daily open 1.3893
TRENDS
Daily SMA20 1.3935
Daily SMA50 1.3769
Daily SMA100 1.3521
Daily SMA200 1.3183
· China’s February factory prices grow at fastest pace since 2018 as exports rise
China’s factory gate prices rose at the fastest pace since November 2018 in February as manufacturers raced to fill export orders, raising expectations for robust growth in the world’s second-largest economy in 2021.
The producer price index (PPI) rose 1.7% from a year earlier, National Bureau of Statistics data showed on Wednesday, compared with the median forecast for a 1.5% rise from a Reuters poll of analysts and speeding up from a 0.3% pickup in January.
The firmer-than-expected price data is in part driven by a very low base a year earlier but also comes as the specter of surging inflation globally rattles financial markets amid concerns the world economic recovery may overheat.
China’s exports in February grew at a record 154.9% in dollar terms from a year earlier, when the country was in a virtual shutdown during the height of the Covid-19 pandemic.
Beijing last week set an economic growth target of above 6% for 2021, which is modest when compared with analyst expectations for an expansion of more than 8%. China’s gross domestic product rose 2.3% in 2020, its weakest growth in 44 years but stronger than its global peers.
Chinese officials continue to warn of difficult external conditions, however, as the pandemic remains severe in other parts of the world and saps demand.
The consumer price index fell 0.2% from a year earlier, the statistics bureau said in a separate statement, compared with a 0.4% fall tipped by a Reuters poll and a 0.3% decline in January.
· China’s uneven recovery from Covid has been ‘understated,’ says S&P economist
China’s services sector has been slow to rebound from the Covid-19 pandemic — and that’s one aspect of its economic recovery that’s been downplayed, according to S&P Global Ratings’ Asia-Pacific chief economist.
China was the only major economy that grew last year despite challenges posed by the Covid-19 pandemic. It reported a growth of 2.3% in 2020, but the performance across sectors was uneven with exports staying resilient while consumption has continued to lag.
· Hong Kong ‘pretty confident’ vaccination will be available for all residents by year-end, health secretary says
· Economists raise Singapore GDP growth forecast for 2021 to 5.8%: MAS survey
Economists have raised their growth forecasts for Singapore this year, anticipating a firmer improvement in the manufacturing and financial sectors.
Singapore’s gross domestic product is expected to grow 5.8% this year, according to median forecasts from 24 economists surveyed by the Monetary Authority of Singapore (MAS).
They expected 5.5% growth in 2021 in the previous December survey.
The outlook for economists has also improved for the labor market, marking an overall unemployment rate lower to 2.9 percent by the end of the year, according to the report released by MAS on Wednesday (March 10).
· Oil slips for third session before U.S. inventories EIA data
Oil fell for a third straight session on Wednesday as investors took profits while looking ahead to U.S. inventories data due later in the day for pointers on where prices will head next.
Brent crude for May dropped 63 cents, or 0.9%, to $66.89 a barrel by 0721 GMT, after earlier hitting an intraday low of $66.50, while U.S. West Texas Intermediate crude for April was at $63.47 a barrel, down 54 cents, or 0.8%.
Prices gained support last week from the OPEC+ decision to largely maintain production cuts in April. They then initially jumped on Monday, with Brent rising above $70 a barrel, after attacks by Yemeni Houthis on Saudi’s oil heartland, before settling back as the alarm subsided.
Reference: CNBC, Reuters, FXStreet
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