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Jun 09 - 04:55 PM

EUR/USD - COMMENT-US Recap: EUR/USD Sheds Early Gains After Key Treasury Yield Holds

By Randolph Donney  —  Jun 09 - 02:43 PM

The dollar was little changed on Wednesday, recovering from early losses after 10-year Treasury yields stopped their slide a whisker above key support at the May 7 low.

This helped cap EUR/USD by the 76.4% Fibo of last week's dive, and it subsequently retreated from the session high 1.2218 high, while the dollar index ricocheted away from its up trendline across May and June lows.

The dollar's early drop and widespread fall in reserve currency government debt yields looked a bit of a stretch before Thursday's ECB meeting and U.S. CPI report, leaving those moves ripe for retracement.

Because Treasury yields are far more nominally positive than those in Europe and Japan, they tend to rise and fall faster, which contributed to Wednesday's recovery.

The benchmark 10-year Treasury yield has been retreating since peaking in March at pre-pandemic levels, which has weighed on the dollar.

A break below the 1.469% May 7 spike low, induced by the disappointing April employment report, would have spurred further dollar selling.

Neither the ECB nor the Fed are seen shifting policy toward less accommodation at this month's meetings.
And their unhurried longer-term policy normalization plans might need months more data to be solidified, leaving Treasury yields and the dollar adrift after reversing Q1's recovery.

The dollar index rebounded from Wednesday's low at the up trendline across May and June lows, but this month's high looks like the top of an ABC correction, so the jury remains out on whether January's pandemic lows remain in play nL2N2NR1GT.

Sterling, down 0.3%, beat an early retreat amid EU-UK friction regarding Northern Ireland and the Brexit agreement nL2N2NR0LW ahead of this weekend's G7 meeting in England.

Cable remained in a multi-week consolidation range below this year's 1.4240/50 peaks.

USD/JPY was up 0.1%, after finding strong demand just above the prior two days' 109.20/19 lows as Treasury yields and the broader dollar bottomed.

The rebound was capped at 109.65, the 10-day moving average and popular options expiry Thursday.
There was scant trading between 109.65 and the 110.05 level after Friday's plunge on mediocre payrolls growth.

USD/CNH again ran into sellers near the prior key support at 6.4000 after China's sharp May PPI and CPI rises were below forecast nL3N2NP2DL.

USD/CAD was down 0.06%, going along with the broader dollar swings, and with the Bank of Canada leaving policy unchanged nT5N2L7012.

Bitcoin rebounded from a five-day slide as regulatory concerns ebbed and El Salvador became the first country to make bitcoin legal tender, though no other countries look poised to follow suit nL2N2NR0CY.

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Refinitiv IFR Research/Market Commentary


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