USD Gains As US Yields Continue To Rise

Sep 29 21, 08:44 GMT

The USD tended to gain against some of its major counterparts yesterday as US yields continued to rise and investors prepare for a possible tapering of the Fed’s QE program. It should be noted that Fed Chairman Powell yesterday warned US lawmakers that the acceleration of inflation could outlast prior expectations, highlighting the bank’s hawkishness, while he is scheduled to make more statements today, this time at ECB’s central banking forum. At the same time US yields continue to rise and its characteristic that the 10 year yield reached a new three month high. Also, in US fundamentals we note the stalemate in the US Congress standoff, about the rise or elimination of the US national debt ceiling. Should the debt ceiling not rise or be eliminated by US lawmakers, we may see the US government running out of money in the next month. US stock markets suffered substantial losses, with all three main indexes being in red territory for the day and the tech sector being particularly victimised by the market’s mood, while also gold dropped as the USD strengthened and US yields continued to rise. We may see fundamentals continuing to lead the market as only a few high impact financial releases are due out from the US today.

The USD index rose yesterday floating just above the 93.70 (S1) resistance line, which has for now, turned to support. As the index broke the upper boundary of its prior upward channel movement, the rise seems to have accelerated thus maintaining our bullish outlook. The RSI indicator below our 4-hour chart is near the reading of 70 confirming the bulls’ dominance yet that may imply that a correction lower could be in the cards for the index. Please note that the pair is currently at levels last reached one month ago and prior to that not visited by the index since November last year. Should the bulls actually continue to guide the index we may see it aiming for the 94.10 (R1) resistance line. Should the bears take over, we may see the index breaking below the 93.70 (S1) and aim if not breach the 93.20 (S2) support level.

Pound falls as fuel shortages seem to persist

The pound dropped against the USD, EUR and JPY yesterday as worries for the recovery of the UK economy along with a risk off sentiment were present in the markets, and its characteristic that the fuel shortages in various petrol stations in the UK are still present. The UK government seems about ready to deploy the military in order to face the supply issues present in the energy sector, given that lorry drivers are in short supply to actually transport the fuel to the stations. Also panic buying of fuel seems to be present in the UK intensifying the issue further and its characteristic that vendors are reported to have started to ration sales. On the other hand, pound traders may keep in the back of their minds, BoE’s confident stance, which could provide some support for the sterling, should market worries ease somewhat. We expect that given the lack of high impact financial releases from the UK, fundamentals may take the lead, guiding the pound.

GBP/USD dropped yesterday breaking the 1.3600 (R1) support line, now turned to resistance. We tend to maintain a bearish sentiment for the pound given that the pairs’ RSI indicator below our 4-hour chart is at the reading of 30, albeit some signs of stabilisation seem to be present. Should the selling interest be extended we may see the pair aim if not break the 1.3430 (S1) support line, while should a correction higher take place we may see cable breaking the 1.3750 (R1) line, paving the way for the 1.3750 (R2) level.

Other economic highlights today and the following Asian session:

Today during the European session, we get Eurozone’s business climate and economic sentiment for September. In the American session, we get Canada’s producer prices for August, the US pending home sales and the weekly EIA crude oil inventories. During tomorrow’s Asian session, we get Japan’s preliminary industrial production for August and China’s manufacturing PMIs for September.

USD index H4 Chart