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USD Index Reaches Highest Level Since 2002 Amid Yield Surge

FOREX
  • The greenback maintained its upward trajectory on Monday, briefly breaching the May highs above the 1.0500 mark and in doing so, registered the highest print for the index since 2002.
  • The upward trajectory for global yields continues to underpin the supportive price action for the USD, weighing on most other G10 currencies.
  • The significant weakness in global equity benchmarks weighed heavily on the likes of AUD, NZD and GBP. AUDUSD is the poorest performer, having retreated 1.60% from last Friday’s close. The extension lower has prompted a breach of support at 0.6950, May 18 low. The focus now turns to the technical bear trigger at 0.6829, May 12 low, where a breach of this level would resume the broader downtrend.
  • The outlier during the US session on Monday was a strong reversal in the Japanese Yen. Early greenback strength had resulted in USDJPY testing above 135.00 during the APAC session, the highest level since 1998. However, waning risk sentiment eventually boosted the Japanese Yen, which recovered around 1% from its worst levels. Despite the move lower, USDJPY conditions remain bullish and initial firm support is not seen until 130.60, the 20-day EMA.
  • GBPUSD (-1.27%) extends recent weakness on the back of a poorer-than-expected monthly GDP release, with April GDP contracting by 0.3% in what's expected to be a rocky few quarters for the economy. Furthermore, negative headlines resurfacing between the UK and the EU regarding the Northern Ireland protocol bill add a layer of political significance behind the GBP weakness.
    • The bear trigger at 1.2156, the May 13 low, has been breached and a sustained break of this level would confirm a resumption of the broader downtrend.
  • Tuesday’s data calendar includes UK unemployment and German ZEW sentiment readings. US PPI provides the last look at inflation before Wednesday’s FOMC decision/projections.
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