- US dollar firms as US yields are on the rise in Asian markets.
- The US ten-year Treasury yield prints a fresh cycle high and the DXY takes on the prior daily support.
In recent trade, despite the quiet Asian session, US yields have marked a fresh cycle high in the 10-year Treasury yield which has lifted the greenback, if only marginally. At the time of writing, DXY is testing the psychological 95.80 level. This is a significant area as per the following technical analysis below.
Meanwhile, the price is back above support levels that have held for the past few months in anticipation of rising US interest rates. The US Federal Reserve meets to set policy next week. In the absence of Fed speakers during the blackout period, the markets have been second-guessing what the outcome of the meeting might be. The greenback has been performing in tow with rising US yields and bouts of risk-off in broader financial markets which are gearing up for the potential of another hawkish surprise.
The yield curve bear flattened as traders have put their focus on Fed hikes, pricing in the first-rate hike in March 2022, and four hikes throughout 2022. The 2-year government bond yields rose from 1.00% to 1.063%, and the 10-year government bond yields rose from 1.80% to 1.89% over the past 24 hours or so.'' With the 10-year breakeven inflation rates stuck below 2.50%, the real US 10-year yield rose to -0.66%, the highest since April 2021.
''This week’s price action reaffirms our view that last week’s drop in yields and the dollar were a countercyclical correction, not a trend change as many dollar bears believed,'' analysts at Brown Brothers Harriman explained.
''Given this way US yields are moving, it’s clear that the Fed’s full-court press last week made a significant impression on the bond market. We fully expect a hawkish hold next week that sets up liftoff at the March 15-16 meeting,'' the analysts added further.
''WIRP suggests a hike then is now fully priced in, followed by hikes in June, September, and December. The expected terminal Fed Funds rates is also starting to move towards 2.0%, which is a key part of the market repricing. That said, we feel that this repricing still has some ways to go.''
DXY technical analysis
The US dollar could be forming an inverse head and shoulders at this juncture which is a bullish pattern that leads us into the Federal Reserve meeting. The right-hand shoulder is yet to form and it will be worth monitoring over the coming days.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.