Here is what you need to know on Wednesday, March 10
US Treasury yields remain the critical driver for markets: the US dollar is losing ground despite US bond yields rising again this morning after falling yesterday.
- EURUSD up from 1.1875 to 1.19
- GBPUSD up from 1.3850 to 1.39
- USDJPY down from 108.90 to 108.65
- XAUUSD at $1713 holding onto its recovery despite the fresh rise in US Treasury yields
Is the market pricing in weaker than expected US CPI data?
US Consumer Price Index figures for February are set to show a minor increase in prices.
A weaker than expected reading will further weigh on the US dollar.
US Inflation Warming Up
Volatility is increasing ahead of US inflation figures to be released at 1330 GMT and a critical treasury 10-year bond auction later tonight.
Yesterday’s successful 3-year US bond auction fueled a rally in global equities and pushed the US dollar down. Will today’s 10-year bond auction trigger the same reaction?
One of the critical upside drivers or inflation expectations and yields comes from President Joe Biden’s $1.9 coronavirus relief package. In the short run, the stimulus package will give a nice boost to GDP, but on the longer run, we fear that too much fiscal stimulus may cause the economy to overheat and in turn cause inflation to go out of control.
Federal Reserve officials have so far dismissed any inflation. But what if a sharp rise occurs? Would the Fed be forced to raise interest rates which will boost the US Dollar?
From a technical perspective, as you can see in the hourly chart, the US Dollar Index DXY is trading below its 50-period moving average (blue line) as yesterday’s sharp selloff triggered a strong recovery in risk currencies. Technical indicators favor further downside in the next few days, however the 200-period moving average (yellow line) is a strong base and will act as support from which the US dollar will rally. Our long-term bias remains bullish with a breach of key important resistance level at 92.50 to trigger accelerated buying.
Chief Market Analyst at SquaredFinancial
Rony has over twenty years of experience in financial planning and professional proprietary trading in the equity and currency markets. Prior to joining SquaredFinancial, Rony educated and coached numerous traders helping them find their edge and arming them with proven trading methodologies to successfully battle the markets. Rony obtained a B.S. in Finance from Concordia University in Montreal, and his professional designations include Certified Financial Planner CFP® obtained from the Canadian Securities Institute.
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