US Treasury yields rose as markets await the Fed’s next move regarding the timeline of raising interest rates after it has finished tapering

22 October 2021, 02:53

Market Focus

US markets were mixed amid strong earnings reports from companies, and the Fed’s upcoming tapering move. The S&P 500 continued to notch new records, while the tech weighted Nasdaq Composite rose 0.6% on Thursday. The Dow Jones Industrial Averages closed a bit lower after reaching an all-time high on Wednesday, dropping 6 points.

US Treasury yields rose as markets await the Fed’s next move regarding the timeline of raising interest rates after it has finished tapering. US inflation expectations, which is measured by a 10-year breakeven inflation rate, jumped to the highest since 2012. The US dollar might witness a rally when the 10-year yield crosses the 1.70% mark.

Responding to the growing controversy over investing practices, the Fed has announced new rules to ban policymakers from investing in individual stocks. In the meantime, they will be restricted to buying and selling mutual funds, which will also require permission. The purpose of the change is to ensure the Fed’s ethical conduct and address the controversy.

Main Pairs Movement

The US dollar was trading at familiar levels throughout the day as the light macro calendar provided no news that would impact the market. The Dollar index consolidated within a tight range, between 93.550 to 93.800. Further instructions may be given after the Markit PMI is revealed on Friday.

However, most major pairs performed badly against the Greenback. The EUR/USD pair traded around 1.1625, while GBP/USD dropped below the 1.3800 level, hovering around 1.3785. The commodity-linked currencies failed to maintain their previous momentum, with AUD/USD dropping over 0.5% to 0.7465, NZD/USD retreating to 0.7150, and USD/CAD surging over 70 pips to 1.2375. JPY was the best performer of the day. USD/JPY once dived to 113.65, and settled at 114.00 at the time of writing.

Gold seesawed around $1,780 a troy ounce during the day, while crude oil encountered some corrective selling pressures, with WTI slipping to $82.60 a barrel, and Brent at $84.70. The US benchmark 10-year Treasury yield resumed its 5-day winning streak and reached a 5-month high at 1.690%.

Cryptos plunged on Thursday right after Bitcoin hit an all-time high yesterday. Bitcoin has lost over 7% of its total value from its peak, while Etherum declined a modest 1.90%, still standing above the $4,000 threshold. 

Technical Analysis

USDCAD (4-hour Chart)

The Loonie finally got a decent hike on Thursday after losing for almost 3 weeks. The pair posted its lowest daily close since early July at 1.2288 during Asian hours, and then bounced to the upside. During the American session, it printed a fresh daily high at 1.2383, and was last seen at 1.2370.

The dollar index swung higher at the close of Wall Street, ending its six-day downtrend. Higher US Treasury yields and the deteriorating market mood underpinned the Greenback. Moreover, the correction in oil prices also weighed on the demand for CAD, further pushing the USD/CAD price upwards. The main trend in USD/CAD should still be on the downside, as long as the worldwide recovery from the pandemic continues, and the demand for energy remains robust.

On the technical front, both the daily MACD histogram and RSI indicator suggests strong bearish sentiment. The price actions are away from the bottom of the Bollinger bands, sparing some rooms for further southern extension.

Resistance: 1.2480 (50% Fibonacci), 1.2750 (78.6% Fibonacci), 1.29490 (yearly high)

Support: 1.2232 (23.6% Fibonacci), 1.2010 (yearly low)

EURUSD (4-hour Chart)

The euro continued its reversal from week-highs at 1.1665 to hit fresh session lows at 1.16 during Thursday’s late U.S. session. The pair is giving away gains after a three-day rally, weighed by higher demand for the Greenback amid sourer market sentiment. Quarterly earnings numbers have failed to lift spirits, and concerns about surging inflation and the supply chain collapse have bolstered demand for safe assets against riskier currencies such as Fiber.

On the macroeconomic side, U.S. data has been mixed. Weekly jobless claims have dropped to their lowest levels in 19 months and existing home sales increased 7.0%, the highest reading since January. On the other hand, the Philadelphia Fed Manufacturing survey dropped to 23.8 from 30.7 in the previous month. On the technical side, the RSI moved down under the 50 threshold to 48.6 figures in the day market, suggesting slightly bearish movement in the short term. For the moving averages, the 15- long indicator has reversed its downward trajectory with exceedingly rapid momentum and the 60-long indicator is turning its head toward slightly upward momentum.

In light of the backdrop of mixed suggestions from the indicators, we expect that the euro will continue to float in a consolidation range between 1.161 and 1.1675. Moreover, it should hover around perfectly upside momentum as it breaks through a W pattern by price-action. However, the market is still lingering in a choppy box pattern.

Resistance: 1165, 1.1675, 1.171

Support: 1.153, 1.161

USDJPY (4 Hour Chart)

The Japanese yen edged lower for the second successive day after hitting the highest level in years amid reviving safe-haven demand. Renewed worries about China’s property sector extended support to the safe-haven JPY. Recently, it dropped below 114 level to 113.63, the lowest point in the week. Furthermore, with the U.S. 10-year Treasuries bond yield hitting its 4-month peak at 1.68%, the market is anticipating that the persistently high inflation and global supply chain congestion will force the Fed to accelerate its tapering of their monetary policy, which has provided additional support to the dollar as well.

From a technical perspective, the RSI indicator retreated under the natural level at 48, suggesting slightly bearish momentum in the short term. On moving average indicators, the 15-long indicator has turned its way to the subtle downside, and the 60-long indicator has retained upward movement.

Since the yen has slipped under the 114 level as the neckline of a double-head, it seems to have lost bullish momentum under current circumstances according to price action. Therefore, we deem that strong resistance has turned to 114 and 115 next. On the slipway, we expect the next immediately support will be a psychological level at 113.5

Resistance: 114, 115

Support: 113.5, 112.57, 112