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USD/JPY Fueling Broader USD Breakout; EUR/USD Weak Under 1.3400

USD/JPY Fueling Broader USD Breakout; EUR/USD Weak Under 1.3400

2014-07-31 11:00:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Talking Points:

- EURUSD denied at 1.3400 after Euro-Zone CPI.

- USDCAD looks for 1.0954 before pullback.

- July forex seasonals in QE era still working against greenback, however.

US Treasury yields have turned higher, and the relationship between weaker bond prices and a stronger US Dollar is starting to emerge. Whereas the 20-day correlation between the DXY and the US10YY was +0.113 on Tuesday, it became more significant by market close on Wednesday at +0.334.

USD/JPY Fueling Broader USD Breakout; EUR/USD Weak Under 1.3400

Considering that US yields have been so weak for the past several months, if the relationship between yields and the greenback tightens up, higher yields necessarily translate into US Dollar strength. Higher yields in the belly of the yield curve (3Y-7Y) suggests market participants are starting to price in a rate hike coming from the Fed perhaps sooner than previously believed.

Today can be viewed as an 'eye of the storm' type day, considering that there's no major US event risk: yesterday saw ADP, GDP, FOMC; tomorrow sees NFPs, PCE, ISM.

See the video above for a technical outlook on USDOLLAR Index, USDJPY, EURUSD, and USDCAD.

Read more: USDOLLAR in Breakout Territory amid ADP, GDP, FOMC

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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