Dollar breaks out to 3-month high as bond yields continue to rise
James Chen, CMT April 25, 2018 7:01 PM
Though the 3% mark for the benchmark US 10-year Treasury yield is hardly a magic number, markets and investors are certainly treating it as such. Tuesday saw the yield poke slightly above 3% to a new multi-year high, exacerbating concerns in the equity markets that rising inflation and interest rates will ultimately weigh on companies and their stock prices. This helped cause a sharp plunge in the major equity indices. Wednesday saw the 10-year yield extend its climb significantly above 3%, which further pressured markets despite a continued slate of positive earnings results from major companies.
As for the dollar, rising yields and interest rate expectations have tentatively helped boost the US dollar index to a new three-month high on Wednesday (peaking at a 91.24 high as of this writing), pushing through key prior resistance around the 91.00 level. At least for the time being, the dollar index breakout has left behind the extended trading range near multi-year lows that has been in place since mid-January. Driven by this recent dollar strength, major currency pairs, including EUR/USD and USD/JPY, have also made robust moves. USD/JPY broke out with a sharp surge on Tuesday above the key 108.00 prior resistance level, which extended further on Wednesday, while EUR/USD has followed through on a breakdown below a major uptrend line that has been in place for over a year. Thursday brings the European Central Bank’s highly anticipated policy decision, which could possibly weigh on the euro even more, potentially providing a further boost to the dollar.
From a technical perspective, the yield-driven rise and breakout of the dollar index has potentially opened a path for further dollar appreciation, especially if the benchmark 10-year yield continues to ascend above 3%. Any continued dollar rebound and rally could then boost the dollar index towards further upside resistance levels around 91.80 (the 50% retracement level of the last bearish run) and the 92.50 area (the 62% retracement of the same bearish run and a key historic turning point for the index).
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.