Weekly Fundamental US Dollar Forecast: Rise in US Treasury Yields May Not Help Greenback; April NFP Due
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Fundamental Forecast for the US Dollar: Neutral
The drop in the US Dollar has occurred even as US Treasury yields have stabilized (if not turned higher), suggesting that rising inflation expectations – not real US yields – are behind the move, which has historically been bad for the greenback.
The main economic event of the week will be the April US non-farm payrolls report due out on Friday, May 7.
According to the IG Client Sentiment Index, the US Dollar has a mixed bias heading into the first week of May.
US Dollar Forecast: Little Relief After April Fed Meeting - Levels for DXY Index, USD/JPY
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The US Dollar (via the DXY Index) has traded higher 10 days in April, while trading lower 11 days. Yet the gauge is still down by -2.75% on the month.
Rising US Treasury yields may help cushion the US Dollar in an environment otherwise defined by the Fed’s ultraloose monetary policy and rising inflation pressures.
US Dollar’s Lopsided April
The US Dollar (via the DXY Index)’s tough month of April has offered few opportunities for reprieve. The damage to the greenback has been asymmetric: even though the DXY Index has traded higher by 10 days thus far (including today) while falling on 11 days, it is down by -2.75% month-to-date with less than 48-hours to go. It’s been the third-worst April over the past decade, and price action at the end of the month has offered few signs of a sustainable reversal. The turn of the calendar coupled with rising US Treasury yields has a
Mexican Peso Forecast: Commodities Rally Boosts Peso s Appeal - Setups for MXN/JPY, USD/MXN
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Mexican Peso Outlook:
Amid a global commodity price boom in recent weeks, the Mexican Peso has benefited, achieving or nearing yearly highs versus the Japanese Yen and the US Dollar.
MXN/JPY rates are flagging after trading through multi-year downtrend resistance, suggesting a major turn may be arriving soon.
We can use the IG Client Sentiment Indexfor USD/CAD rates as a close proxy for USD/MXN exposure, which has a mixed bias.
Mexican Peso Retaining Strength
Throughout the month of April, the combination of stability in long-end global bond yields and a surge in global commodity prices, particularly agriculture and a subset of base metals, has provided a sturdy base from which the Mexican Peso has been able to rally. For the most part, price action remains in line with expectations outlined in our 1Q’21 Top Trade Opportunities and 2Q’21 Top Trade Opportunities. With s
Central Bank Watch: Fed Speeches, Interest Rate Expectations Update
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Central Bank Watch Overview:
Federal Reserve policymakers are on the verge of releasing their April rate decision, but that doesn’t mean policy is heading anywhere new soon.
For the past two-plus weeks, Fed officials have been extremely disciplined with respect to a persistent drumbeat of keeping rates low and policy accommodative at the onset of the US economy’s recovery from the coronavirus pandemic.
Fed fund futures still see greater than a 90% chance that rates markets will be on hold through early-2022.
All Together Now: On Hold
In this edition of Central Bank Watch, we’ll review the speeches made over the past week by various Federal Reserve policymakers, including the Fed Chair himself. In the run-up to today s meeting (and ahead of the blackout window), Fed policymakers were extremely present in the day-to-day machinations of financial markets. The signposts have been made clear: po
Canadian Dollar Technical Analysis: Loonie Eyes Yearly Highs - Setups in CAD/JPY, USD/CAD
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Canadian Dollar Outlook:
The Canadian Dollar is quickly approaching its yearly high versus the US Dollar less than a week after the BOC surprised markets with its QE taper announcement, and just one day ahead of the Fed announces the results of its April meeting.
USD/CAD’s drop to a fresh yearly low may help accelerate flows back to CAD/JPY, which still has a bit further to go before new highs are reached.
According to the IG Client Sentiment Index, USD/CAD rates have a near-term bullish bias.