USD Continues To Rise On The Back Of Higher Yields

Mar 09 21, 11:55 GMT

The USD continued to gain against a number of its counterparts yesterday, as US yields continued to rise and characteristically the US 10 year Treasury yield reached 1.57% a new one year high. The optimism about the recovery of the US economy continues to be strong, especially after the US Senate passed Biden’s fiscal stimulus plan yet worries about inflation accelerating too fast also tend to exist. US Treasury Secretary Yellen stated on the other hand that the Biden Covid Bill is unlikely to result into an inflation problem, yet at the same time she also stated that it could fuel a very strong US recovery. Today we expect fundamentals to continue to guide the USD given that there are no high impact financial releases scheduled from the US for today, yet the market may start positioning itself ahead of the US CPI rates due out tomorrow.

EUR/USD continued to drop yesterday breaking the 1.1905 (R1) support line, now turned to resistance. We maintain our bearish outlook for the pair, as long as it remains below the downward trendline incepted since the 3rd of March. Please note that the RSI indicator below our 4-hour chart is below the reading of 30, implying that the pair is oversold and a correction higher is possible. Should the bears maintain control we may see the pair breaking the 1.1830 (S1) support line and aim if not breach the 1.1760 (S2) level. Should the bulls take over, we may see the pair breaking the prementioned downward trendline, break the 1.1905 (R1) resistance line and aim for the 1.1990 (R2) level.

Tech shares continue to be driven down

The value of tech shares seems drop while the Nasdaq composite continued its slide after the Senate’s approval of a massive new relief package kicked off a possible new phase of the market-wide value rotation. The sell-off in technology stocks is likely not over, according to analysts, as many strategists think the declines are healthy, and that share prices of many tech companies shot up too much, too fast in the past months. We highlight the fact that shares of Tech giants such as Tesla, Facebook, Alphabet, Amazon, Netflix and Apple all have marked losses characterizing the drop of the sector’s share prices. Markets seem to expect technologies shares to return their gains made during the pandemic as their values may be overstretched and other sectors of the economy are to reopen. We tend to maintain a bearish outlook for the sector, yet the wide correction lower may also create a buying opportunity for the markets.

Nasdaq 100 Cash restarted to drop in the American session aiming for the 12305 (S1) support line once again and relented any gains made earlier in the day. Despite the recent stabilisation of the index between the 12305 (S1) and the 12890 (R1) levels we maintain our bearish outlook for the time being given the downward trendline incepted since the 16th of February. Should the selling interest be resumed, we may see the index breaking the 12305 (S1) support lien and aim for the 11975 (S2) level. Should the bulls take over, we may see the index breaking the 12890 (R1) resistance line and aim for the 12960 (R2) level, after breaking also the prementioned downward trendline.

Other economic highlights today and early Tuesday:

Today during the European session, we note Germany’s trade data for January and Eurozone’s revised GDP rate for Q4. Please note that in the late European session BoE’s chief strategist Andy Haldane is scheduled to speak. Just before the Asian session starts, we get from the US the weekly API crude oil inventories figure and later on we highlight Australia’s consumer confidence for March and from China the PPI and CPI rates for February. Please note that during the Asian session RBA Governor Philip Lowe is scheduled to speak. Should RBA Governor maintain a dovish tone, we may see the Aussie weakening somewhat while of special interest would be any comments he may make about the rise of yields and if the bank plans to intervene in the markets once again. Also note that we have noted Dallas Fed President Kaplan moderating a conversation, ahead of the Fed’s meeting next week.

EUR/USD H4 Chart