Rising US bond yields lift dollar, Russia-Ukraine talks progress

EUR Extends Slide, USD/JPY Hits 5-Year High; Stocks Tumble

Summary: The Dollar Index (DXY), a favoured gauge of the Greenback’s value against a basket of 6 majors currencies climbed to further supported by rising US bond yields. In early Sydney trade, the USD/DXY opened at 99.13 against Friday’s 98.47 close. The benchmark US 10-year bond yield edged higher to 1.99% (1.98% Friday). Meantime the US imposed further sanctions on Moscow even as Russian forces shelled some small Ukrainian towns. Talks between Russia and Ukraine which began yesterday (Sunday) progressed. Since Russia launched a large-scale invasion of Ukraine on the 24^th of February, more than 2.5 million people have fled while thousands have died. It was risk-off as markets opened in Sydney this morning, extending Friday’s close. Markets were also looking ahead to this week’s central bank meetings with both the Fed and Bank of England expected to hike interest rates. The Euro (EUR/USD) slid further, closing 0.9% lower to 1.0915 (1.0987 Friday). Sterling tumbled 0.55% to 1.3030 from 1.3097, hitting a 2022 low at 1.3027. Against the yield sensitive Japanese Yen, the US Dollar soared to 117.35 (116.05 Friday), a fresh 5-year peak. The Australian (AUD/USD) Dollar tumbled 1.02% against the Greenback to 0.7290 from 0.7365 Friday weighed by the market’s risk-off stance. Against the Asian and EM Currencies, the US Dollar finished higher. The USD/SGD pair was last at 1.3630 (1.3590) while the USD/THB (Dollar vs Thai Baht) closed at 33.30 from 33.10.  Wall Street stocks fell with the US S&P 500 down 1.19% to 4,207 (4,257). The DOW slumped, finishing in New York at 32,962 from Friday’s 33,150.

Data released on Friday saw Japan’s Household Spending climb to 6.9% against estimates of a 3.3% rise. UK Industrial Production rose to 0.7% from 0.3% while Manufacturing Production was up 0.8% from 0.2%. Canada’s economy created a total of +336,600 Jobs in February, much better than median forecasts of +160,000. Canada’s Unemployment rate fell to 5.5% from 6.5%. The US Preliminary University of Michigan Consumer Sentiment eased to 59.7 from a previously upward revised 62.8 and median forecasts at 61.4.

• EUR/USD – The Euro extended its underperformance in FX, sliding to 1.0915 in late New York Friday from its opening at 1.0987. Broad-based USD strength and Europe’s proximity to Russia/Ukraine weighed on the shared currency. Overnight, the EUR/USD pair traded to a low at 1.0905.
• USD/JPY – The Greenback soared to 117.36 overnight and fresh highs not seen since January 2017 from its opening at 116.05 Friday. The USD/JPY pair had a volatile session, like the old days trading between 116.05 and 117.36.
• GBP/USD – Sterling was also under pressure against the surging Greenback, tumbling to 1.3027 from Friday’s opening of 1.3097. The British Pound saw an overnight high at 1.3125 following the release of better-than-expected UK Industrial Production data.
• AUD/USD – The market’s risk-off stance and an overall stronger US Dollar weighed on the Aussie Battler. Overnight, the AUD/USD pair slid to a low at 0.7281 after opening at 0.7362 on Friday. The Australian Dollar closed at 0.7090 against the Greenback.

On the Lookout: The week ahead kicks off with a light data calendar today. New Zealand just released its Visitor Arrivals (m/m down to -34.5% from a previous 16%). Europe follows with Germany’s Wholesale Price Index (m/m f/c 0.9% from a previous 2.3%). France releases its French Trade Balance (f/c -EUR 9.8 billion from -EUR 11.3 billion). Switzerland follows with its SECO Economic Forecasts (Swiss government’s major GDP components). There are no North American economic reports scheduled for release today.

The week ahead sees the US Federal Reserve meet on monetary policy on Thursday (5 am Sydney, 17 March). The Bank of England has its MPC rates meeting later on (11 pm Sydney, 17 March).

Trading Perspective:  The Dollar’s climb higher against its Rivals has legs in it given the likelihood of a rate hike from the US Federal Reserve at the conclusion of their meeting late this week. Meantime geopolitical tensions and rising US bond yields continue to support the Greenback. After easing to low at 1.72% this month, the US 10-year bond yield closed at 1.997%. This pushed the Dollar Index (DXY) to 99.16 overnight high before easing to settle at 99.13 (98.47 Friday morning). The Greenback was strongest against the yield sensitive Japanese Yen, hitting multi-year highs at 117.36. If talks between Russia and Ukraine yield positive results, an easing in geopolitical tensions and risk-off could see the Greenback sold off against its rivals. The speculative trading market is also sitting long US Dollars. They have been for some time now. Watch for these signs because a powerful reversal in the Greenback could be coming. The one constant we can rely on today is that FX volatility will continue. Happy days!

• EUR/USD – The Euro has traded heavy all week yet failed to break down through the 1.09 level. Overnight low for the EUR/USD pair on Friday was at 1.0902. The shared currency had a choppy session trading between 1.0902 and 1.1044 on Friday, closing at 1.0915. After the ECB said that it was modifying its asset purchases, short-covering and fresh buying pushed the Euro up to 1.1121. For today, immediate support can be found at 1.0900 followed by 1.0870. Immediate resistance lies at 1.0950 and 1.0980. Look for more choppy trade in a likely range today of 1.0885-1.0985. Preference is to buy dips toward the 1.0885 level.
• USD/JPY – Against the Japanese Yen, the Dollar soared to an overnight and 5-year highs at 117.36, before closing near its highs at 117.35. Early this morning the USD/JPY pair hit a high at 117.58 before easing to its current 117.50 level. While the USD/JPY is well bid, Japanese exporters will find current levels attractive to cover their requirements with the pair near 5-year peaks. Early this morning the USD/JPY pair hit a high at 117.58 before easing to its current 117.50 level. Immediate resistance lies at 117.60 followed by 117.90. Immediate support can be found at 117.00 and 116.70. Look for USD/JPY to trade in a choppy range between 116.70-117.70. Preference is to sell rallies.

(Source: Finlogix.com)

• AUD/USD – The Australian Dollar eased against the Greenback to 0.7290 from 0.7365. The market’s risk-off stance weighed on the Aussie Battler. On the day, immediate support lies at 0.7280 (overnight low traded was 0.7281). The next support level is found at 0.7250. On the topside, immediate resistance is found at 0.7310 and 0.7340. Look for a likely trading range today of 0.7275 to 0.7375 today. Preference is to buy dips near the low end of the range.
• GBP/USD – Sterling fell under the weight of the overall stronger Greenback to finish at 1.3030 from Friday’s opening at 1.3097. Overnight the GBP/USD pair traded to 1.3027, which is the lowest this year. On the day, immediate support for Sterling lies at 1.3020 followed by the psychological 1.3000 level. On the topside, immediate resistance can be found at 1.3080, 1.3110 and 1.3140. Look for further volatile trading in this currency pair with the likely range 1.3020-1.3120. Just trade the range shag on this one today.

Have a good Monday and a productive week ahead.