Talking Points:
- EUR/USD momentum outlines clear trend with daily 8-EMA.
- USD/JPY holding at resistance bodes well for EUR/JPY lower.
- See the November forex seasonality report that forecasts US Dollar strength.
Expect a quieter day on the fundamental side of things today, as the Veteran's Day holiday in the United States has bond markets closed, and thus, one of the biggest drivers of US Dollar strength in recent weeks - shifting interest rate differentials - on pause. In honor of SIFMA's recommended closure of US bond markets in observance of Veteran's Day, let's use the mid-week pause to examine recent yield shifts.
There are two ways to visualize recent shifts in market expectations. First, the Fed funds futures contract is now implying a 66% chance of a 25-bps rate hike in December:
Second, a look at shifts in the US Treasury yield curve structure over the past month highlights the change in rate expectations:
Over the past month, the belly of the yield curve - debt with duration of 3- to 7-years - has seen the biggest surge in nominal yields. As was the case during the "taper tantrum," a steepening belly of the yield curve (relative to the short-end or the long-end) has been a strong indicator of underlying US Dollar strength. While thos bodes well for the greenback, it may not bode well for other risk sensitive assets - USD/JPY may struggle to rally if equity markets slip. If USD/JPY struggles given EUR/USD bearish structure, this could feed into greater EUR/JPY losses over the coming weeks.
See the video above for technical considerations in EUR/USD, EUR/JPY, USD/JPY, GBP/USD, AUD/USD, and the USDOLLAR Index.
Read more: Risk/Reward of USD/JPY Long Not Appealing as Short EUR/USD
--- Written by Christopher Vecchio, Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
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