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Apr 06 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Rallies As Dollar Loses Yield Edge

By Randolph Donney  —  Apr 06 - 03:31 PM

The dollar fell broadly on Tuesday as U.S. Treasury yields retreated further from their recent one-year highs, depriving the U.S. currency of interest rate support.

U.S.
jobs opening hit a two-year high in February nL1N2LZ17A, data showed, adding to the list of strong reports that have failed to firm Treasury yields, including a record services ISM and stellar non-farm payrolls report nAPN04CETQ.

EUR/USD reached its highest since March 23.
Last month's 1.1704 trough nearly completed a 38.2% Fibo of the entire pandemic recovery, leaving EUR/USD oversold.
The subsequent rebound has cleared the 23.6% Fibo of this year's slide at 1.1856, with the 200-day moving average beyond at 1.1883.

Retreating 10-year Treasury yields were down roughly 12bps from last week's pandemic recovery high, and 10-year Bund-Treasury yield spreads haven't made a new closing low since March 29.

Softening Treasury yields and rallying stocks could further dim demand for the safe-haven dollar, helping EUR/USD return to 1.2000.

The market will be watching Wednesday's asset purchase updates ahead of ECB meeting minutes on Thursday for clues about the bank's bond interventions.
New York Fed operations may attract greater scrutiny after Tuesday's stronger buybacks in the 30-year tenor.

Traders who recently went long the dollar may grow nervous after the U.S. currency's lackluster response to strong U.S. economic news nL1N2LZ153, which could also raise questions about ultra-accommodative fiscal and monetary policies as twin budget and trade deficit risks rise.

Sterling underperformed, losing ground to the dollar and the euro after Monday's heavily oversold EUR/GBP low nearly reached important support.

Cable's rebound attempts this week have run into sellers at the underside of the broken up trend-line from November, and much of the UK's vaccination outperformance over the EU may be already priced in nL1N2LZ14Z even with grim pandemic news numbers from France nP6N2L901D.

USD/JPY slid to just below its week-ago 109.75 session low, which is the on-close pivot-point, as the low of the session before the 110.97 EBS 2021 high session.

This year's wild net spec positioning swing -- from the most short USD/JPY since October 2016 to the most long since May 2019 -- adds to the risk from confidence eroding, particularly if it were to fall below the bottom of the net long accumulation trading range base at 108.34 nL1N2LZ17B.

A fall below 108.34 could put the 38.2% Fibo of this year's 8.2% rebound and weekly kijun at 107.77/69 in play.
There is, however, still scope on the 10-year Treasury yield chart to eventually reach key resistance near 2.0%, underpinning USD/JPY again if reached.

Wednesday brings U.S. Feb Trade balance data and Fed meeting minutes.

For more click on FXBUZ

Source:
Refinitiv IFR Research/Market Commentary

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