Talking Points:
- The US Treasury 2-year note yield hit its highest level since early-2008, while the 10-year note yield crept back above 3.000%.
- US Dollar momentum remains firmly to the topside, despite taking a breather thus far today.
- Retail traders remain net-long EUR/USD and GBP/USD, signs that they may still fall further yet.
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The US Dollar (via the DXY Index) ran up to a fresh four month high earlier today before reversing course at the start of the European trading session. A quiet economic calendar did little to distract traders from the headlines regarding the US withdrawal from the Iran nuclear deal, which has seen Crude Oil move to a fresh yearly high and highest level since November 2014.
While market participants are still understanding the ramfications of the US withdrawal from the Iran nuclear deal, there seemingly has been little direct impact on risk appetite: US equity futures continue to point higher; the US Treasury 2-year note yield hit a fresh 2018 high and is at its highest level since January 2008; the US Treasury 10-year note yield move back above 3.000%; and the Japanese Yen has sold off meaningfully.
With regards to the yield aspect of the story, the continued push higher in rates is exerting itself more and more as an influence over the US Dollar again. While the greenback is taking a bit of a breather today, buying dips remains the best course of action while the 'higher yield story' is still in vague.
Add in the implied large net-short position against the US Dollar in the futures market (implied by British Pound and Euros net-long positioning), and the potential for more US Dollar upside persists in the near-term.
Price Chart 1: DXY Index Daily Timeframe (August 2017 to May 2018)
From a technical perspective, US Dollar bullish momentum remains strongly to the topside. Price is above the daily 8-, 13-, and 21-EMAs in sequential order, while both MACD and Slow Stochastics are trending higher. This reinforces the fundamental outlook for the US Dollar at present time is to buy dips.
Read more: US Dollar Hits Pause after FOMC, Awaits Clues for April NFP
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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