USD rallies as US Treasury yields pop higher

USD rallies

Today’s focus turns to US Housing data

USD rallies and the USD Index is finally on the move higher after strong US fundamentals started shining through & Trump remained quiet on international issues.

This past week, Federal Reserve officials signaled further interest rate increases in 2018 based on evidence of steady U.S. growth, while the heads of the ECB and the Bank of England seemed in no rush to push rates higher in the wake of disappointing economic data out of Britain and Europe.

In fact, BOE Governor Carney has completely moved the goalposts after weaker-than-expected wage growth and inflation data this week. Carney told the BBC on Thursday that a May rate rise was not a given and that there were other BoE meetings later in the year.

Markets are now pricing in a 40% chance of a 25 basis point rise in May, down from an almost 70% chance before Carney spoke.

The Canadian dollar weakened to an 11-day low against the USD on Friday after data showing domestic inflation rose at a slower-than-forecast pace further reduced expectations for an interest rate hike next month from the Bank of Canada. The BOC Core MM data was way off the mark coming in at +0.2% versus 0.7% forecast.

So it was a perfect storm with strong US fundamentals colliding with the weak UK, European & Canadian data. The moves on the majors the past few days have been somewhat exaggerated because of this.

But the writing is on the wall and I expect the USD to continue to rally from here, barring some innocuous left-field event generated by Trump.

US 10 Year treasury yields are up at 2.9658, their highest level since Q1 2014. The USD Index looks primed for a solid move higher if it can break 90.45-50 resistance.

USD rallies

You should expect the data to be extremely important from here. Now that we have clear direction on the majors, the slightest data releases that run with this sentiment will be jumped on by all traders.

So pay close attention to the European PMI data today and US Housing data. If we get weak Eurozone data and strong US data then we may see EURUSD go for another run to the downside ahead of Thursday’s ECB Policy meeting.

Check our Next Best Trades Watchlist for full details as to which specific pairs we are focusing on.

Asian Session

There’s nothing to really get excited about. I am expecting USDJPY to be a buy on dips scenario, outside of that it’s a good time to tune up your charts, plan your trading week and relax.

European Session

We’ve got a round of German & Eurozone PMI data scheduled for releases.

Pressure is on the downside so it’s well worth checking out the data and looking for an opportunity to get into a trade.

North American Session

The focus will be on the US Markit Manufacturing PMI data & Existing Home Sales.

Traders are looking for any excuse to get into the US dollar so this may be the chance. Also, keep an eye on the US Treasury yields. If they continue to rally the USD should go with them and US equities should start to fall.

Let’s not completely forget about Trump….. he is the one rogue in the market that could change things very quickly.

Technical Set Up – What’s Happening with the Majors

The strong upward move in the USD has all the majors correlating perfectly. This is the first time in a long time and usually signals ‘good trading conditions’.

So look for your technical levels and go with the trend.

USD rallies

Check our Daily Analysis for detailed analysis of the Major currency pairs.

Today’s Fundamental Drivers

USD rallies

Plan the Trade, Trade the Plan!

The idea of our “Market Insight” is to give you some guidance with your daily preparation.

Your Daily Analysis needs to become habitual – For full guidance on our daily routine click here.

Make sure you don’t waste unnecessary time in front of the screens.

Remember you need to be fresh, confident and ready to trade and by sitting aimlessly in front of your screens you will become stale and uncertain.

The key to your success: Isolate the opportunities that work for you and focus on them.

Don’t worry about things that you can’t make…..chasing them will only cause problems (tiredness & irrational behavior will take over).

Tune up your charts & get ready to trade…..see you in the 247 Trade Zone!

Brad

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