QUICK TAKE: USD Downtrend Resumes, Fed Remains Calm Over Rising US Yields
Equities: As Fed members, Powell, Clarida and Brainard dismissed the concerns surrounding rising US rates, the bond market is yet again challenging the Fed as global bond yields continue its climb higher. The benchmark 10yr up another 7bps to 1.46%, which has come to the detriment to the tech sector as the Nasdaq 100 underperforms. That said, with the Fed remaining calm over the bond market, the focus insight will likely be on 1.50%. (Full analysis)
Euro Stoxx 50 Sector Breakdown
Outperformers: Financial (2%), Energy (1.5%), Technology (0.6%)Laggards: Healthcare (-1.7%),Basic Materials (-1.5%), Utilities (-1.1%)
Intra-day FX Performance
USD: Sentiment in the USD remains weak as the greenback finally made a firm break below the 90 handle after mild attempts to dip below. In turn, it appears we may see the continuation of the USD downtrend, but in the more immediate term, eyes will be on month-end rebalancing during the London fix, where investment banks models have touted USD selling.
EUR: Yesterday’s USD corporate demand tested dip buyers in the Euro, who promptly responded as the common currency now trades back above 1.22 for the first time since mid-January. In turn, given this latest move to the upside, the focus is for EUR/USD to tackle the 1.23 handle. Alongside this, with the Euro on a trade-weighted basis hovering around levels back in Q3 20, the ECB appears to be tolerating a higher Euro, for now, thus allowing for EUR/USD to rise as the TWI pushes higher.
AUD: Australian Dollar continues to follow the reflation narrative, with a rally inbase metals lending support.Copper forecasts are calling for record highs given expected supply deficits, which has increased the attractiveness of the Aussie. Alongside this, with the US fiscal impulse on the horizon, there is little to dislike about AUD, particularly against funding currencies (JPY and CHF). Earlier today, AUD/USD briefly hit 0.80 for the first time 3 years and should AUD/USD close above the psychological level, there is little in the way until the double top at 0.8125-35. That said, once again on the technical front, momentum in the short run looks to be somewhat excessive with the RSI at its highest level since early March. In turn, the view is for bids on dips for the pair as equity prices are likely to continue with its upward trajectory.
of clients are net long.
of clients are net short.
Looking ahead: With little on the data front, Fed speakers will be watched. However, as Fed members continue to state that rising yields reflect economic optimism, I will be surprised if the upcoming Fed members deviate from the current Fed stance.