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USD Follows US Yields To YTD Lows, Gold Breaks 6-Year Trendline

USD Follows US Yields To YTD Lows, Gold Breaks 6-Year Trendline

2017-06-06 20:15:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

  • USD/JPY breaks within 1X ATR of 2017 lows (108.13)
  • Increasing UK election uncertainty is causing Sterling hedgers to say ‘not this time.'
  • Gold is enjoying the air above a 6-year Trendline as it works on the highest close since Nov. 4
  • Sentiment highlight: USD/CHF shows a USD bounce (albeit a limited one) could happen soon

Tuesday provided a heaping of news events, but most were not enough to life USD as the DXY is looking to close at its lowest levels since November. Overnight, news came out that China is now ready, and may have already begun to begin purchasing, as opposed to selling Treasuries now that the Yuan has stabilized. Given the size of Chinese purchases, we could see another drop lower in yields, which has been positively correlated to the USD and a significant buyer moving into the market would push up the price and down the yields of Treasuries.

The correlations of USD, JPY, & US Treasuries are worth discussing here. Over the last 20 trading days or month, DXY has a positive correlation of ~0.5 with US10Y Yield and +0.476 with US 2Y yields. USDJPY has a positive correlation over the last month to US2s & 10s of +0.793 and +0.881 respectively. With the US 10Y yield at the lowest levels since November, you can see how this favors concern for a lower USD/JPY as lower yields are currently strongly correlated with a lower USDJPY and vice versa.

Recommended Reading: USD/JPY Technical Analysis: It Could Get Scary Below These Levels

Another recent trend we have noticed is Sterling weakness. In the shadow of Thursday’s election, this may be littlemore than treasury desks at companies making sure they’re not shocked by another surprise income when their unexposed GBP holdings become worth much less than they were before the election. Much like we saw ahead of the Scottish referendum and the European Referendum, the GBP volatility is a proxy on Polls and before we know the results on Thursday, any poll showing the May is losing her lead to Corbyn could bring further weakness. As of Tuesday, on a relative basis, Sterling is the weakest G8 currency as it is below the 200-MA on an H4 chart more commonly than any other G8 currency with the USD closed behind.

Would you like to know what our top minds are watching over the long-term in markets?

Lastly, Gold bulls have something to celebrate after nearly 6-years of wound licking as it has traded TO 6-month highs above a trend line drawn off the 2011 high of $1,920. There have been signs of risk-off sentiment rising, which aligns with the lower sovereign yields. China reported gold imports are likely to jump by 50% if the haven demand continues, which could keep the trend riding high. While the chart is a weekly chart, the levels to watch in the coming weeks will be the $1,320 zone where we topped out on November 9 will be important resistance, as it is on EUR/USD.

Join Tyler in his Daily Closing Bell webinars at 3 pm ETto discuss tradeable market developments.

Why are havens rising alongside risk assets and what do our analysts think will happen with oil? Find out here!

Closing Bell’s Top Chart: June 06, 2017, Gold has given Bulls something to cheer about

USD Follows US Yields To YTD Lows, Gold Breaks 6-Year Trendline

Tomorrow's Main Event:AUD Gross Domestic Product (QoQ) (1Q) Exp. 0.3%

IG Client Sentiment Highlight:USD/CHF sellers are joining the dollar-selling party, will it turn?

The sentiment highlight section is designed to help you see how DailyFX utilizes the insights derived from IG Client Sentiment, and how client positioning can lead to trade ideas. If you have any questions on this indicator, you are welcome to reach out to the author of this article with questions at tyell@dailyfx.com.

USD Follows US Yields To YTD Lows, Gold Breaks 6-Year Trendline

USDCHF: Retail trader data shows 74.9% of traders are net-long with the ratio of traders long to short at 2.98 to 1. In fact, traders have remained net-long since Apr 21 when USDCHF traded near 1.00538; theprice has moved 4.3% lower since then. The number of traders net-long is 1.9% lower than yesterday and 20.2% lower from last week, while the number of traders net-short is 18.0% higher than yesterday and 103.4% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCHF prices may continue to fall. Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USDCHF price trend may soon reverse higher despite the fact traders remain net-long. (Emphasis mine)

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Written by Tyler Yell, CMT, Currency Analyst & Trading Instructor for DailyFX.com

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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