US Bond Yields Rebound, Powell Stresses Fed’s “Independence”

Summary: The Dollar held steady after US bond yields bounced off their lows, ending higher. Benchmark 10-year notes were yielding 2.04%, from 1.99% at the New York close. Fed Chair Jerome Powell stressed that the US central bank would be “insulated from short-term political pressures.”
On the trade front, investors remained hopeful that a deal between China and the US could happen at the upcoming G20 meeting in Osaka. A misquote from US Treasury Secretary Mnuchin that a trade deal between the two nations “is 90% done” boosted risk appetite. What Mnuchin really said was that they were “about 90% of the way” there. The Euro was little changed at 1.1368 as was Sterling, at 1.2688. The Dollar Index, (USD/DXY), often a mirror of the Euro, closed mildly up at 96.227 (96.16). New Zealand’s Dollar, the Kiwi outperformed the Dollar and its peers, to 0.6680 from 0.6640, up 0.64%. As was widely expected, the RBNZ kept it’s key (OCR) rate at 1.5%, leaving the door open for an August rate cut. While the RBNZ kept a dovish stance, it was not as aggressive as some traders expected. Generally positive risk sentiment enabled the Australian Dollar to rally 0.35% to 0.6985. The Dollar rallied 0.56% against the Yen to 107.77 (107.17) boosted by the rise in the US 10-year treasury yield. US Durable Goods Orders were mixed, Headline orders missed forecasts but Core (non-defence, excluding aircraft) bettered expectations.

CNBC US 10-Year Bond Yield Chart (5DAY) - 27 June 2019
CNBC US 10-Year Bond Yield Chart (5DAY) – 27 June 2019
  • EUR/USD The Euro traded within a relatively tight 1.13476-1.13913 range, closing little changed at 1.1368. German 10-year Bund yields rose 3 basis points to -0.3%.
  • AUD/USD an absence of negative rhetoric on China-US trade in preparation for the G20 meeting at week’s end and a bid Kiwi favoured the AUD/USD pair. The Aussie Battler stayed above 0.6950, as traders keenly await the Xi Jinping-Trump meeting.
  • USD/JPY – The Yen underwhelmed against the US Dollar and its peers after a strong showing at the start of the week. The bounce in the US 10-year yield from 1.99% to 2.05% lifted this currency pair to 107.80 from 107.18 yesterday. Generally positive risk sentiment also aided the USD/JPY.

On the Lookout: The market’s focus shifts to the G20 and US-China trade relations. While analysts are not expecting any breakthroughs, many are hopeful that the meeting would re-start dialogue which would lead to avert more tariffs between the two nations.
Reaction to the misquoted comments from US Treasury Secretary Mnuchin highlight sensitivity to any statements made. Traders will keep an eye out for any press releases, or comments made by various officials.
The bounce in the US bond yields came as a result of scaled back expectations of any aggressive decreases next month. Ten-year yields bounced off their 1.98% lows to its current 2.04%, which are the highs this week.
Economic data releases today include Japanese Retail Sales, New Zealand’s ANZ Business Confidence Index, and German and Spanish CPI data. The US reports its Q1 Final GDP and GDP Price Index, Weekly Unemployment Claims, and Pending Home Sales.

Trading Perspective: Higher US yields relative to its global peers will keep the Dollar steady for now. For the Dollar to make a bigger break lower, US yields would have to fall further.
Expect consolidation within recently established ranges to dominate trading heading into the G20 meeting.

  1. EUR/USD – The Euro closed at 1.1370 after trading to an overnight low at 1.13476. Immediate and trendline support can be found at 1.1340 which should hold on the day. A break below could see us back to the 1.1300, and 1.1280. Immediate resistance lies at 1.1390 followed by 1.1420. Look to trade a range between 1.1340-1.1390. Prefer to buy dips.
  2. USD/JPY – The Dollar traded to an overnight low at 107.099 before rallying on the back of higher US yields and improved risk sentiment. USD/JPY closed at 107.78. Overnight high traded was 107.854. Immediate resistance can be found at 107.90/00 followed by 108.20. Immediate support lies at 107.50 and 107.20. Japan’s 10-year JGB yield was at -0.14%, up two basis points. Look for a likely trading range today of 108.20-108.90. Just trade the range shag on this one.
DAILY FX AUD USD Chart - 27 June 2019
DAILY FX AUD USD Chart – 27 June 2019
  1. AUD/USD – The Aussie Battler grinded higher to finish at 0.6985 in New York boosted by its southern cousin the Kiwi. Improved risk sentiment and the absence of domestic data also supported the Australian Dollar. AUD/USD traded to an overnight high at 0.69948. Immediate resistance lies at 0.7000 followed by 0.7030. Immediate support can be found at 0.6955 and 0.6935. Look for a likely trading range today of 0.6960-0.7010. Prefer to buy dips.
  2. NZD/USD – The Flightless Bird found its wings following an initial drop after the RBNZ kept its key lending rate unchanged which was widely expected. The Kiwi rallied on short covering from traders who were disappointed that New Zealand’s central bank were not as aggressive as they anticipated. NZD/USD has immediate resistance at 0.6700 (overnight high traded was 0.66929). The next resistance level is found at 0.6730. Immediate support can be found at 0.6650 and 0.6630. The RBNZ left the door open for a rate cut in August. Look to trade a likely range of 0.6640-0.6690. Prefer to sell rallies.

Happy trading all.