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Higher US Yields Provoke Broad Greenback Strength, EMFX Underperforms

FOREX
  • The 0.45% move higher for the USD index on Monday has broadly been a function of yield differentials, with Fed ’24 pricing moving away from Friday’s dovish extremes as participants continue to assess the viability/speed of the Fed easing priced into markets. The associated extension of post-inflation Euro weakness and heavy price action for equities are also assisting the greenback recovery.
  • As such EURUSD (-0.50%) continues its short-term grind lower and traded within four pips of the 1.0800 handle during today’s session. The move lower appears to be a technical correction with support to watch at 1.0770, the 50-day EMA.
  • With a less optimistic risk backdrop the likes of AUD and NZD are underperforming, with the Norwegian Krone the weakest in G10. Furthermore, the higher US yields have had a notable impact on some emerging market currencies, with the Mexican peso briefly extending losses to 2.00% and USDMXN trading above its firm initial resistance of 17.4888, the 50-day EMA.
  • The re-widening of yield differentials also underpinned a recovery for USDJPY which had a 120pip bounce from the 146.23 lows printed during APAC hours. The recent move lower for the pair highlights a resumption of the bear cycle that started Nov 13. Attention is on a key support at 146.76, a trendline drawn from the Mar 24 low. With today’s breach, a clear break would signal a stronger reversal and open 145.91, the Sep 11 low. Key short-term resistance to watch is 148.51, the Nov 30 high.
  • The focus in PAAC on Tuesday will be the RBA decision, where It is widely expected that the central bank will leave rates at 4.35%. In the US, the ISM Services PMI and JOLTS data headline the docket.
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