Dollar Subdued as Benchmark US Treasury Yield Declines

Summary : Equity markets across the globe performed positive on Monday over optimism on headlines which signalled temporary truce between China & U.S.A. US Dollar gained positive momentum in American session supported by better than expected US November ISM manufacturing data but US equities fell and initiated a bearish rout in Asian equities as the 10-year treasury yield fell 8 basis points to 2.96 percent despite positive macro data and its first time since November 2017 for 10-year benchmark to fall below its 200-day moving average (MA) well under 3% psychological mark which earlier this year helped the US Greenback begin its bullish rally across major global currencies and helped USD grab the title of most preferred safe haven asset from Gold. On European markets IT-DE spread difference continues to fall indicating positive progress in budget negotiations.

  • The dollar index (USD/DXY) which is used to measure strength of greenback against 6 major global currencies is trading down by 0.34% at 96.62 in early European market hours as fall in US treasury yields caused demand for US Greenback in broad market to slow down.
  • US Crude Oil WTIUSD is trading positive in both spot and futures market as expectations for production and supply cut announcements from OPEC meet scheduled to occur later this week is putting a bid under crude oil market across the globe.
  • Precious metals trade positive as risk appetite subdued and investors turned cautious over lack of further updates regarding the 90-day truce between China & U.S.A.
  • While subdued dollar and falling spread difference in IT-De bonds helped EURO gain positive price action, UK market and GBP/USD continue to suffer from Brexit woes as long debate to discuss PM May’s Brexit draft is set to begin today while final decision is expected to be announced on Dec 11,2018.

On the Lookout:

  1. Sino-U.S Trade War – Market became disillusioned with headline influenced momentum from weekend on news of 90 day truce between China & U.S.A as no further details or updates about talk was revealed and key issues haven’t been addressed yet which greatly affected risk appetite in market.
  2. OPEC Summit – Investors across globe are now on lookout for OPEC summit as concerns of US Sanctions on Iranian Crude Oil & fear of glut over increased production by three major global oil producers namely Saudi Arabia, Russia & USA saw oil market lose over 30% in last two months and investors now expect that weekend summit will see OPEC members and allied counties agree to cut supply by nearly 1.4 million barrels per day and also agree on curbing some production activity.
  3. UK Politics –UK Political climate is still unstable as Brexit woes continue to keep members of Tory party divided. The parliament is expected to began debating on PM May’s EU approved brexit deal draft which will go on until Dec 11 when final vote on Brexit deal is made.
  4. Economic Data Release & Events – UK market is scheduled to see speech from BOE Governor Carney on Brexit deal while US market is relatively silent aside from a speech by FOMC Member Williams. Canadian Market will see release of Q3 Labor Productivity data.

Trading Perspective:

  1. AUD/USD – The AUD/USD pair jumped 16 pips to a session high of 0.7365 after the Reserve Bank of Australia (RBA) kept interest rates unchanged at a record low of 1.5 percent, as expected, but upgraded the language on international trade. The pair continues to trade near four-month tops set in the previous session but gains were capped by RBA’s cautious tone on household income, high debt levels and wage growth. Short term outlook remains positive for Australian Dollar as a sharp fall in the US Treasury bond yields exerted some fresh downward pressure on the US Dollar and remained supportive of the strong bid tone surrounding the major.
  2. USD/JPY – The USD/JPY is looking south as the 10-year US treasury yield hit 13-month lows. With investors fretting over a possible pause in the Fed’s rate-hike cycle, a sharp fall in the US Treasury bond yields and turned out to be a key trigger for bearish traders which have resulted in USD/JPY pair remaining heavily offered through the early European trading session after yesterday’s good two way move. Adding to this, a fresh wave of global risk-aversion trade, as depicted by weaker tone across equity markets, underpinned the Japanese Yen’s safe-haven status and further collaborated to the pair’s steep intraday decline signalling continued bearish price action for the pair today.
  3. EUR/USD – The common currency scored marginal gains in Asia as the benchmark US Treasury yield fell below the 200-day moving average (MA) of 2.96 percent – its first drop below the long-term average since November 2017. The up move of major was further supported as the Italy-German 10-year bond yield spread continues to fall signalling easing concerns about Italy’s fiscal issues. As US dollar remains subdued across the board EURUSD is expected to trade positive across today’s market hours.