• EUR net spec long slightly lower at 138,365 from previous week's 140,006

• GBP net spec long jumped to 30,978, highest since March 2020, from previous week's 22,167

• AUD net spec short diminished at 1,636 vs previous week's short of 2,821

• JPY net spec long drops to 28,622 from previous week's 37,182

• CHF long 11,523 vs previous week's 8,371

The dollar extended its recovery on Friday, even without the help of rising Treasury yields, as investors remained sufficiently shell shocked following this week's bond market rout to bid up the safe-haven U.S. currency.

Ten-year Treasury yields found support near where they broke out higher in Thursday's spike, with a little help from January consumer income, spending and price data showing a fiscal-stimulus-funded 10% surge in personal income and the biggest rise in consumer spending in seven months nL1N2KW1HE.

Still, with inflation fears gripping markets, core PCE price growth came in relatively restrained at 1.5%, a tad above expectations but steady on the month and well below the Fed's 2% target.
A jump in the savings rate to 20.5% from December's 13.4% also suggested some restraint in spending.

However, with a $1.9trln relief bill being finalized by Congress, and three-quarters of that money going to direct payments to individuals, markets are pricing in another wave of income, savings and spending.

Thus, Treasury yields are likely to remain in a normalizing uptrend, with gradual pricing in of Fed tightening next year supporting the dollar, despite policymakers' protestations that they are nowhere near tightening nS0N2JQ00R, though also untroubled by rising in yields nL1N2KV2D7.

Conversely, alarm bells are going off at the ECB regarding the recent rise in euro government bond yields nL8N2KV1RF, with Greece's central bank chief today calling on the ECB to lift its bond purchases nL8N2KW6WZ.

EUR/USD hit session lows in New York afternoon trading, breaking the 50% Fibo of February's rebound, with support in the 1.2020s next.

Gold prices tumbled below key supports, also signaling increasing haven and yield-driven demand for the dollar.

Sterling sank to its lowest in six sessions, as the overbought pound saw longs booking profits after this week's peak nearly reached the post-Brexit referendum high and as BOE Chief Economist Andy Haldane warned about inflation pressures, sending Gilt yields higher nL1N2KW2C8.

EUR/GBP's rebound from oversold depths Wednesday was rejected by the 21-day moving average.

USD/JPY was headed for a 50% Fibo of the pandemic downtrend at 107.155 after closing above the 38.2% Thursday, as well as the monthly tenkan and prior February peak at 106.22.
The 161.8% Fibo target off January's base is at 107.32.
Prices are largely rising with Treasury-JGB yields spreads that are about to lose any drag from rising JGB yields as 10-year yields near the BOJ's YCC cap nL1N2KW1XP.

Aussie and other commodity or emerging market currencies extended their retreat from Thursday's highs, with AUD/USD at its lowest since Feb.
9 after nearing 2018's peak on Thursday.
Pivotal 55-day moving average support is at 0.7703, near Friday's 0.7711 low.

In the run-up to next Friday's U.S. jobs report, markets will watch to see if the retreat in asset inflation trades and rebound in the dollar persist into the new month.

For more click on FXBUZ

• Soured risk puts a bid into safe-haves in Europe am, AUD/USD falls

• 61.8% Fib of 0.7564-0.8007 pierced, 0.7731 hit, NY opens near 0.7760

• Bounce extends, 0.7800 neared, sellers emerge as eurodollar rates rise

• Copper, gold drops & mixed equities help send AUD/USD to a 14-day low

• Slide stalls short of 55-DMA, meager bounce ensues, pair near 0.7720 late

• Daily techs are bearish, long upper wick on Feb candle bolsters bearishness

• 55-DMA, daily cloud top, 76.4% Fib 0.7564-0.8007 are threatened

• Break of those supports likely leads to test of February's monthly low

• For more click on FXBUZ

ANZ Research discusses its latest outlook for Gold.

"The US 10y Treasury yield recently pushed above 1.4%, representing its highest point since the start of the pandemic. More importantly for gold, the 30y Treasury yield has climbed 20 basis points over the past month to hit 2.18%. The bond selloff has come at a time when the USD’s recent selloff has abated, with the DXY trading sideways for the past two months," ANZ notes. 

"With policy makers still advocating immense policy support, the likelihood of bond yields falling is low. However, we now expect US inflation to hit 2.5% this year. Combined with further depreciation in the USD, we see gold’s fair value at USD2,000/oz in the second half of the year," ANZ adds. 

• Sterling fell to its lowest in six days amid haven dollar gains

• Drop from Wed's 1.3240 peak aided by deeply overbought RSIs

• Also by BOE Economist Haldane's warnings on inflation risks nL8N2KW4LB

• Gilt yields rising even as other key govt's yields retreat from Thur's peak

• Week's peak near 2018's post-Brexit referendum high spurs profit-taking

• Month-end rebalancing was also in the mix

• Kijun/50% Fibo of Feb's rise at 1.3903 breached, tenkan above at 1.4035

• Broader uptrend intact while above the rising 55-DMA, last at 1.3683

For more click on FXBUZ

Bank of America Global Research discusses its bearish EUR/USD case over the coming months.

"We recently changed our EURUSD forecast for this year from 1.20-1.25 to 1.15-1.20 (from 1.25 to 1.15 year-end). Though our 1Q forecast of 1.20 is turning to be right, we have turned negative on EURUSD for the remaining of the year following three new developments: the mixed Fed communication and hints for QE tapering; the massive US fiscal stimulus; and a slow start of European vaccination," BofA notes. 

"The market remains long EUR, which is a particularly stretched position for real money. Our baseline makes no specific assumption about the risk outlook, but our global investment strategy team is concerned about stretched valuations and positioning, which would also be negative for EURUSD," BofA adds. 

• GBP/USD rallies from 1.3890 to 1.3953

• At 1.3939 pair met min correction objective for 2020's rise

• 38.2% retracement 1.3451-1.4240 is 1.3939; 50% 1.3846, 21-DMA 1.3860

• GBP/USD has seen sufficient correction to allow resumption uptrend

• A key factor that will underpin pound is lack of spec longs IMM/FX

• Without excessive spec longs weighing pair's retreat may be small

• Levels over 1.40 attract non-spec sellers, but unlikely to chase pair down

• Same sellers will likely repeat their interest but have less GBP to hedge

• Related comment nL1N2KW10K

Credit Agricole CIB Research discusses the JPY outlook and maintains a bearish bias, expressing that via holding a long USD/JPY exposure in its trade-rec portfolio.

"The JPY is one of two G10 currencies the USD has managed to outperform recently (the other is the CHF). We expect this trend to continue in the coming week as rising UST yields drive the exchange rate higher," CACIB notes.

"Indeed, USD/JPY has the double benefit at present of strong risk sentiment as well as rising yields supporting its rally," CACIB adds. 

TD Research discusses the current market conditions and flags a scope for higher USD over the coming weeks.

"The market meltdown has commenced, revealing the tensions between the improvement of the global outlook and the extraordinary stimulus measures that remain in place. The surge in volatility isn't surprising, given a host of varying signals have been flashing red on the current state of global markets," TD notes. 

"As we noted yesterday, a broader market meltdown was likely to propel the broad USD higher, leaving the EUR and other funding currencies under duress as well. This backup in yields is likely a speedbump rather than a roadblock to 2021 global reflation, though again the transition between themes, and subsequent positioning adjustment will accelerate the turbulence," TD adds. 

• Yesterday AUD/USD opened 0.7967 reached 0.8007 and closed 0.7859

• Today opened 0.7873 and dropped to 0.7749

• As of Feb 16 traders were still short AUD/USD IMM/FX Feb 16 peak 0.7805

• While traders likely net long by yesterday, bets probably quite small

• This drop doesn't have roots in speculation, quite the opposite nL1N2KW10K

• Support nearby: 21-DMA 0.7752 and 61.8% Feb is 0.7732

FX traders can use a simple option strategy to cover a possible dollar drop against the yen if investor sentiment against global stocks and bonds becomes more marked.

In times of uncertainty, with risk aversion on the rise, funds usually flow into the safe-haven yen.
A USD/JPY cloud twist on March 4 under 104.00 warns of bearish moves in coming sessions.
Cloud twists usually act as a magnet to FX traders.
EUR/JPY is also at risk of slumping as the 30-day correlation with USD/JPY is increasing and is close to the +0.5 threshold.

So those who want to insure against a USD/JPY drop could buy a two-week 105.40 USD put option at a cost of 24 pips, priced with spot at 105.40.
Profit potential is unlimited if spot is below the 105.16 break-even point at the March 21 expiry.
Losses are limited to the 24 pips premium paid.

For more click on FXBUZ

• FX options warned of FX volatility and risk aversion this week nL1N2KV1RU

• Still caught off guard by extent of moves overnight, especially AUD/USD

• Its high beta to risk saw biggest G10 volatility and downside premium gains

• 1-month implied volatility 10.25-12.05, 3.0 above Feb low, setbacks limited

• 1-month risk reversal biggest one day drop since March, to highs since June

• Premium for AUD puts over calls (spot downside) 1.0 to 2.0

• Market clearly wary of more volatility/spot losses

• Related comment nL1N2KW0TN

  
  

  
  

  
  

  
  

  For more click on FXBUZ

• USD/JPY "cloud twist" still a risk, but bulls put up a fight nL1N2KW0PM

• Japanese stocks crumble as bond market rout wreaks havoc nL4N2KW1S5

• Helps to keep a lid on USD/JPY after it hit 106.43 on the EBS in Asia

• In times of uncertainty, funds usually flow into the safe-haven yen

• Though high U.S. yields remain supportive of USD/JPY

• USD/JPY, EUR/JPY ate trading more in tandem, 30-day log correlation grows

• Not as strong a signal as EUR/GBP's but cable's inverted hammer significant

• Resulting reversal has rocked the underlying bull trend

• However, the trend still alive while above 1.3830, Feb 17 low

• We have a bid at 1.3835, looking for a trend resumption

• A major Fibo, 50% 1.3566-1.4240, at 1.3903 could be pivotal near-term

• Potential for a weekly inverted hammer candle: one to watch

  For more click on FXBUZ

• Wed's hammer candle warning to bears proved very timely and significant

• The reversal higher kicked in with a bang Thurs and accelerated into Frid

• Our 0.8601 long play heavily in the money and stop raised to 0.8620

• Will raise the stop again on a close above 0.8700

• A minimum correction of the 0.8229-0.8540 drop met at 0.8703

• Next Fibonacci, 38.2%, is at 0.8803: 21DMA initial res. at 0.8732

• Potential weekly hammer candle also a strong reversal signal

  
  

• AUD/USD down 0.55% in volatile Asia as risk mood continues to deteriorate

• APAC stocks broadly lower, E-Mini down 0.5%, ASX 200 -2.3%, Nikkei -3.99%

• Bonds continue to sell off in Asia despite c.banks efforts to calm markets

• RBA intervenes to stem bond market rout, yields ease a touch nL1N2KW02X

• 0.7820 previous high on Jan 6 holds, break signals interim high @ 0.8007

• Further support at 0.7785, 0.7760-65, resistance 0.7860-70, 0.7900-05

• For more click on FXBUZ

• GBP/USD trampled below 1.4000 early Fri as Asia stocks slump

• US Treasury yields gyrate back up after slight retreat

• 10y crawls back above 1.500%, renewing broad USD bullishness

• GBP/USD Fri close may confirm exit from bullish channel

• Bollinger band at 1.4017 is key to near-term recovery

• Failing which, 21 DMA at 1.3860 is more likely outcome

• For more click on FXBUZ

  
  

  
  

UOB Research flags a scope for a downside correction in AUD/USD on overbought conditions .

"We have held a positive view in AUD for more than 2 weeks now...We noted that “strong boost in momentum suggests further AUD strength” and that “the next resistance is at 0.7960," UOB notes. 

"Overbought shorter-term conditions could slow the pace of advance...On the downside, a break 0.7870 (‘strong support’ level previously at 0.7825) would indicate that the positive phase in AUD has run its course," UOB adds. 

• Flat, towards the top of a busy 1.3950-1.4016 range - USD led in Asia

• USD initially bid as UST yields extended gains, but 10yr UST now -5bp 1.474%

• Car sector seeks more UK government support as output tumbles nL8N2KV56O

• Brexit teething supply issues and switch to electric cars a real challenge

• Charts; 5, 10 & 21 daily weekly and monthly moving averages trend north

• Targets 1.4303, 50% 2014-2020 fall, then the 1.4377 2018 high

• Close below 1.3999 rising 10 DMA needed to undermine the topside bias

• Soft close would suggest cable uptrend is in a consolidation phase

  For more click on FXBUZ

• Japanese data dump today mixed, some bearing on USD/JPY direction, flows

• The closely watched Jan industrial output strong, +4.2% m/m, +4.0% eyed

• Feb output eyed at +2.1%, prev forecast -0.3%, March seen at -6.1% though

• Better data does back up anecdotal evidence Japan exporters doing well

• Exporters good sellers of USD/JPY since Sept, helped limit USD/JPY upside

• Jan retail sales -2.4% y/y, tad better than -2.6% eyed, still weak on COVID

• Tokyo-area Feb core CPI -0.3% y/y, -0.4% eyed, overall CPI -0.3% too

• Deflationary pressures to keep BoJ policy easy, money tap open

• That said, BoJ likely to widen YCC band(s) in March, let long yields move up

• This would amount to a de facto tightening, a steeper yield curve

• See nT9N2K002K, nL4N2KV367, nT9N2KL01O, nT9N2KL024

• For more click on FXBUZ

• Off 0.3% as the rise in yields undermines stocks and risk appetite

• E-mini S&P -0.25%, Nikkei -2.3%, AsiaxJP -1.25%, 10yr UST flat at 1.515%

• Commodities also under pressure - U.S. copper -1.1%, WTI oil -0.3%

• Fed is comfortable with market volatility at all time highs nL1N2KV2D7

• Charts; Thur's bearish outside day needs a close below 0.7859 to validate

• Would become a key day reversal after Thursday's 0.8007 trend high

• Potentially a strong bearish signal for next week - close is key

• Asian 0.7823-0.7883 range is initial support and resistance

  For more click on FXBUZ

• Touch firmer after closing off 0.9%, as risk soured as UST yields jumped

• COVID shot is quick and doesn't hurt, says UK's Queen Elizabeth nL8N2KV79P

• UK's fast paced vaccine rollout continues - key for 2021 economic recovery

• Charts; 5, 10 & 21 daily weekly and monthly moving averages trend north

• 1.3999 rising 10 day moving average under pressure - a base on this move

• Close below 10 DMA would suggest cable will consolidate next week

• 1.4182 NY high then this week's 1.4240 trend top initial resistance

• 1.3999 10 DMA, then 1.3983, 38.2% of the February rise supports

  For more click on FXBUZ

• +0.05% - closed +0.1%, supported by cross flows, as Treasury yields jumped

• Volatile offshore, but resilient as positive sentiment evaporated in NY

• EU says on track to reach 70% adult vaccination goal by summer nB5N2ID009

• EU - must stick with tight restrictions as virus variants loom nB5N2HP04L

• Charts; 5, 10 & 21 daily moving averages climb - momentum studies conflict

• Modest positive setup targets a test of 1.2255, 76.4% 2021 fall

• NY 1.2160-1.2243 range is initial support and resistance

  For more click on FXBUZ

TD Research likes short exposure in AUD/USD and NZD/CAD.

"We discuss global macro volatility pricing gaps. Perhaps part of today's mystery lies in the transition from one theme to another in the context of mispriced markets," TD notes. 

"We expect more turbulence ahead, underscoring the 1-sigma gap on global vol metrics. A mini-tantrum offers the release valve given the rise in global data surprises. We added fresh AUDUSD shorts and remain short NZDCAD," TD adds.