Euro Wilts as Soaring Treasury Yields Lift US Dollar. Will EUR/USD Break Down?
EURO, EUR/USD, US DOLLAR, TREASURIES, BOJ, USD/JPY, CRUDE OIL – TALKING POINTS
- The Euro was caught in the US Dollar crossfire as yields leapt today
- BOJ policy is unchanged but a lifted inflation outlook smoked APAC equities
- If yields continue higher, where does that leave the single currency?
Euro Wilts: The Euro has retreated again today after US Treasury yields continued higher in anticipation of the Fed lifting rates at their March FOMC meeting.
The Bank of Japan (BOJ) also added to hawkish expectations after raising their inflation forecasts.
The BOJ left monetary policy unchanged after their 2-day meeting today, but they have raised their 1-year inflation forecasts to 1.1% from 0.9%.
The market had been looking for more evidence of a wind-back of ultra-easy policy. The Yen depreciated across the board as a result, with USD/JPY initially climbing above 115.00 but then retreating as risk assets were sold off.
When Japanese markets re-opened after the lunch break, Treasury yields resumed their march higher. The benchmark 10-year note climbed to a new high above 1.85% and the 2-year went above 1.05%.
This left interest rate-sensitive tech stocks particularly vulnerable and Nasdaq futures were down over 1% as a result. The S&P 500 and the Dow futures were down to a lesser extent.
The tech-laden Korean and Taiwan indices were hit hard as were all developed equity markets across the APAC to some degree.
Euro Wilts: Mainland China was a notable exception, up slightly on the day after the PBOC cut rates yesterday.
Gold was softer as yields were rising. AUD and NZD were lower but CAD and NOK fared better with oil rallying.
Crude oil prices continued higher with the Brent crude futures contract making a seven year at USD 87.55. The WTI contract is yet to overcome the October high on this run up.
Tensions in the Middle East are adding to supply concerns after the Iran-backed and Yemen-based Houthis’ drone strike on the capital of the United Arab Emirates yesterday.
OPEC are due to deliver their monthly report later today.
The US is back from a long weekend today and there will be the release of the Empire State manufacturing survey as well as the Treasury international capital (TIC) flow data.
EUR/USD TECHNICAL ANALYSIS
After breaking higher last week, EUR/USD has retreated to test pivot point support at 1.13830 – 1.13865.
Should it move below there, support might lie at the 10-day simple moving average (SMA) or at the previous lows of 1.12724, 1.12347, 1.12219 and 1.11861.
On the topside, resistance could be at the previous highs and pivot points of 1.14830, 1.15133, 1.15245 and 1.16922.