News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bullish
Oil - US Crude
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bearish
Gold
Mixed
GBP/USD
Bearish
USD/JPY
Bearish
More View more
Notice

BoE Chief Econimist (Hawk) is to Step Down From BoE After June Meeting

Real Time News
  • Commodities Update: As of 18:00, these are your best and worst performers based on the London trading schedule: Silver: 2.28% Gold: 0.78% Oil - US Crude: 0.14% View the performance of all markets via https://www.dailyfx.com/forex-rates#commodities https://t.co/YIgPqIQiO8
  • Mitch McConnell: There is no GOP support for repealing the tax bill $USD
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Silver are long at 92.36%, while traders in France 40 are at opposite extremes with 75.62%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/XaeYYJbglR
  • The US Dollar (via the DXY Index) continues to trade lower after losing the uptrend from the February and March swing lows. Get your $USD market update from @CVecchioFX here:https://t.co/bvAaeNSVO3 https://t.co/tfKhSt85iN
  • Fed: - Directors of the Federal Reserve saw inflation increasing to 2% or even above
  • Fed: - Directors saw economic recovery gaining momentum - Directors are upbeat about the future, but there is still a lot of doubt - No change in the discount rate was requested by directors of all 12 districts
  • Indices Update: As of 18:00, these are your best and worst performers based on the London trading schedule: France 40: 0.33% US 500: 0.14% FTSE 100: -0.04% Germany 30: -0.05% Wall Street: -0.41% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/0EWmhOp4AD
  • It is our (mine as well) default habit to look for the breakouts with pressurized trend potential, but current mkt conditions don't support those kinds of setups. That said, $GBPUSD still looks like a good range picture https://t.co/3kcg34Mw0B
  • $EURUSD has continued higher today amidst further US Dollar weakness following the CPI print and a strong 30yr bond auction. The pair is currently trading around the 1.1940 level, at a three week high. $EUR $USD https://t.co/GTIUH2dxov
  • US 10yr Treasury yields have fallen further following the strong auction in the 30yr. After hitting a weekly high around 1.70% this morning, yields have dropped to a multi-day low around 1.625%. $USD https://t.co/7rK6uh1uJn
US Dollar Forecast: Yields Wag the Dog - Levels for DXY Index, USD/JPY

US Dollar Forecast: Yields Wag the Dog - Levels for DXY Index, USD/JPY

Christopher Vecchio, CFA, Senior Strategist
Advertisement

US Dollar Outlook:

  • The US Dollar (via the DXY Index) has rallied alongside US Treasury yields. That dynamic seems poised to continue as the narrative around the ‘reflation trade’ gathers pace.
  • 1Q’21 US GDP expectations have moderated in the past few weeks, but remain incredibly robust by historical standards.
  • The IG Client Sentiment Index suggests that USD/JPY has a bullish bias.

US Dollar Tethered to Yields

The expression “the tail that wags the dog” is deployed to describe a situation when one small factor becomes the dominant differentiator in outcomes. Although bond yields are but one aspect of global financial markets, they are in the driver’s seat. Yields are wagging the dog; commodities, FX, stocks, and seemingly everything in between are responding directly to movements in US Treasury yields.

For the US Dollar (via the DXY Index), this has been a convenient narrative as the ‘reflation trade’ gathers pace, where the greenback rallies alongside higher US yields and even higher US stocks. The reflation trade may continue to gather pace in the coming periods as the Biden stimulus package is signed into law, enhancing a macro environment defined by incredible government spending and low interest rates.

USD Forecast
USD Forecast
Recommended by Christopher Vecchio, CFA
Get Your Free USD Forecast
Get My Guide

Federal Reserve Interest Rate Expectations (March 10, 2021) (Table 1)

US Dollar Forecast: Yields Wag the Dog - Levels for DXY Index, USD/JPY

Accordingly, after a week of Fed officials downplaying inflation fears and suggesting that rising US Treasury yields reflect economic optimism, interest rate expectations remain firmly anchored: Fed funds futures are pricing in a 93% chance of no change in Fed rates through January 2022. The bottom line: don’t expect the Fed to do anything along the interest rate channel anytime soon.

Read more: Central Bank Watch: Fed Speeches, Interest Rate Expectations Update

Trading Forex News: The Strategy
Trading Forex News: The Strategy
Recommended by Christopher Vecchio, CFA
Trading Forex News: The Strategy
Get My Guide

Atlanta Fed GDPNow 1Q’21 Growth Estimate (March 10, 2021) (Chart 1)

US Dollar Forecast: Yields Wag the Dog - Levels for DXY Index, USD/JPY

Based on the data received thus far about 1Q’21, the Atlanta Fed GDPNow forecast is looking for growth at +8.4% annualized. The estimate has moderated in the past few weeks from +9.5%, after rising sharply from +4.5% in early-February. The next 1Q’21 Atlanta Fed GDPNow forecast will be released on Tuesday, March 16 after the February US retail sales report (which spurred the last jump in 1Q’21 US growth expectations).

DXY PRICE INDEX TECHNICAL ANALYSIS: DAILY CHART (March 2020 to March 2021) (CHART 2)

US Dollar Forecast: Yields Wag the Dog - Levels for DXY Index, USD/JPY

In the prior US Dollar forecast update, it was noted that “a move over the mid-February swing high of 91.06 would suggest that the turn higher is gaining legitimacy.” The DXY Index has returned to a familiar zone that has served as both support and resistance going back to late-July 2020, as well as the 23.6% Fibonacci retracement of the 2018 low/2020 high range and the 38.2% Fibonacci retracement of the 2011 low/2020 high range at 91.93.

Momentum is turning after the recent rally. The DXY Index is below its daily 5-EMA, but above its daily 8-, 13-, and 21-EMA envelope, which is otherwise still in bullish sequential order. Daily Slow Stochastics are turning lower from overbought territory, while daily MACD is starting to turn lower albeit above its signal line. Now back below the initial intrayearly uptrend, DXY Index may be in for more choppy trading in the near-term.

USD/JPY RATE TECHNICAL ANALYSIS: DAILY CHART (March 2020 to March 2021) (CHART 3)

US Dollar Forecast: Yields Wag the Dog - Levels for DXY Index, USD/JPY

In the prior USD/JPY forecast update, it was noted that “rising US yields may stem a significant drop in the pair, particularly as USD/JPY approaches the rising trendline from the intrayearly swing lows. The recent advance in USD/JPY was rejected at the underside of the rising trendline from the March and September 2020 lows, itself a magnet for price action throughout November and early-December 2020.” This comment coincided with the late-February low in USD/JPY, which was promptly elevated by the surge in US Treasury yields to their highest level since February 2020.

The rally may have gotten a bit long in the tooth this week, given the separation between the spot price at close on Monday and the daily 5-EMA. To this end, even after two days of pullback, USD/JPY rates remain above their daily 5-, 8-, 13-, and 21-EMA envelope, which remains in bullish sequential order. Daily Slow Stochastics are trending lower but haven’t departed overbought territory, while daily MACD remains at its 52-week high (despite some weakness). More gains may be ahead soon for USD/JPY rates after some profit taking.

JPY Forecast
JPY Forecast
Recommended by Christopher Vecchio, CFA
Get Your Free JPY Forecast
Get My Guide

IG Client Sentiment Index: USD/JPY RATE Forecast (March 10, 2021) (Chart 4)

US Dollar Forecast: Yields Wag the Dog - Levels for DXY Index, USD/JPY

USD/JPY: Retail trader data shows 37.46% of traders are net-long with the ratio of traders short to long at 1.67 to 1. The number of traders net-long is 8.43% lower than yesterday and 23.33% lower from last week, while the number of traders net-short is 1.26% lower than yesterday and 15.34% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise.

Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/JPY-bullish contrarian trading bias.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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

DISCLOSURES