Weekly Initial Jobless Claims for the week ending Feb 27 were 745k, lower than the 750k estimate but higher than last week’s 736k. Claims during the past year have remained stubbornly high compared to pre-Covid averages, with the best weekly result last November at 711k. Prior to the Covid pandemic weekly claims averaged 220k. Continuing Jobless Claims (the number of registered unemployed) dropped to 4295k, the lowest YTD total, but considerably higher than the pre-pandemic 1735k average. Clearly many people are still experiencing employment disruptions and remains one of the key focal points for the Fed.
The recent rebound in Treasury yields is counterintuitive given the stalled employment recovery and below-target inflation. The U.S. 10-Year Treasury yield reached 1.495 yesterday and has remained above 1.4000 for a week. Yields crossed above 1.000 on Jan 6 and above 1.200 on Feb 12.
The U.S. dollar index is higher today by 0.24% but is still trading below resistance at 91.500. The dollar’s primary gains are vs. the CHF (+0.62%), and JPY (+0.47%) as traders sell the ‘safe-havens’ to buy dollars.
One area of dollar weakness today is vs. the MXN with the dollar down 0.60% vs. the peso. The peso is the primary asset for exposure to emerging markets so peso strength could be a sign of an increasing risk appetite. Resistance is at 21.0300 and support at 20.5000.
The U.S dollar index is holding onto a slim gain of 0.02% today. A positive daily close would mark its 4th consecutive daily gain. Resistance at 91.500 near the 100-day moving average is capping the dollar’s advance. The dollar is mixed when paired vs. the G10 currencies, the biggest gain +0.24% vs. the CHF and decline of 0.48% vs. the NOK. The AUD is not far behind with a gain of 0.46% and is back above 0.7800 (after trading below 0.7700 Friday-Monday).
USD/MXN: bias is for a stronger dollar; daily resistance at 21.0300; support at 20.5000 and 20.3500.
USD/CAD: long-term bias continues to favor a stronger CAD; resistance at 1.2875; support at 1.2600 and lower at 1.2475.
Treasury yields continue higher with the benchmark U.S. 10-Year Treasury +0.004 at 1.424. The 10-Year Treasury gained 49.1 basis points during January-February (0.916 to 1.407) on growing optimism for a global economic recovery from Covid-19.
This week’s economic calendar has key scheduled releases late in the week: Mortgage Applications & ADP Employment on Wednesday; Initial Jobless Claims, Durable Goods, and Factory orders on Thursday; and Nonfarm Payrolls on Friday. Friday’s Nonfarm Payrolls will likely be the key focus as labor has lagged other measures in the U.S. economic recovery.
Bond yields have retreated from last week’s highs which has paved the way for a rebound in equities and slowed the U.S. dollar’s advance. All of the major Asian and European equity indexes have posted gains of at least 1% and U.S. equity futures are also pointing to a strong open.
The U.S. dollar index is higher today by 0.21%, a modest advance compared to Friday’s gain of 0.83%. Bond yields have been trending higher (as bond prices drop) since last September (close to when the first Covid-19 vaccine results began to be published) and are now increasing the appeal of owning the U.S. dollar. As global economies continue to rebound in step with dissemination of the Covid-19 vaccines, higher inflation and improved labor markets seem certain to follow. Fed Chairman Powell said repeatedly last week that it was too soon to begin thinking about adjustments to the policy rate. But markets are not waiting for policy action to begin making position adjustments tied to economic recovery.
The dollar’s biggest gain today is +0.67% vs. the CHF, consistent with the shift away from traditional ‘safe’ assets. The dollar has also gained 0.22% vs. the DKK, 0.21% vs. the EUR, and 0.08% vs. the JPY.
Dollar losses are against commodity/oil export currencies: -0.93% vs. MXN, -0.79% vs. NOK, -0.53% vs. AUD, -0.50% vs. CAD, and -0.30% vs. NZD.
Oil process are +0.54% today, a decent rebound after Friday’s 3.20% drop.
Recent USD/MXN volatility has helped to uncover fresh support and resistance levels. Daily support is now at 20.3500, consistent with where this pair broke away from the long-term downtrend on Feb 18th. Resistance is in the vicinity of 21.0000-20.0300.
Last week the AUD/USD reached a new multi-year high (at 0.8007) and yet closed the week with a loss of 2.08%. This price activity (outside week) is considered a potential major reversal. Resistance at 0.8000 will be significant. Support is at 0.7550 and 0.7400.
CHF, DKK, SEK
The dollar index climbed back above 91.00 this morning after the stimulus bill passed in the House over the weekend, coupled with recent stronger than expected economic indicators giving the greenback a bid. Retail sales, consumer confidence and home sales have all been stronger than expected as of late. As the roll out of the vaccine continues and the economy opens it should lead to a continued recovery of the labor market. This has boosted equities and the bond market may be stabilizing for now. USDCHF jumped above .9100 and is up 70 bps on the day as risk-on demand has caused the CHF to sell off. USDDKK has also found a bid this morning as the pair has climbed nearly 30 bps today. USDNOK is one of the few G-10 pairs that the dollar has fallen against this morning declining 65bps today which may be some profit taking on recent large moves up in the pair. USDSEK has climbed 20bps on the day.
Yesterday Fed Chairman Powell delivered the Federal Reserve’s semiannual monetary policy report to Congress. Anyone hoping Chairman Powell would deviate from the FOMC’s long-running dovish stance was disappointed as he maintained the glass-is-half-empty view on the economy. Recently markets had been surging on vaccine-related declines in the spread of COVID-19. However, Powell’s testimony briefly acknowledged the success against the virus in a single sentence: ‘In recent weeks, the number of new cases and hospitalizations has been falling, and ongoing vaccinations offer hope for a return to more normal conditions later this year.’ Aside from that Powell stuck firmly to the view that the rebound in economic activity and labor markets have slowed and that the ‘economic recovery remains uneven and far from complete, and the path ahead is highly uncertain.’ Discouraging words for a market impatient for a recovery.
Treasury yields retreated from their recent highs in response to Powell’s remarks, and a perpetual accommodative stance is expected to continue to weigh on the dollar.
The U.S. dollar index continues to trade just above support at 90.000 and the dollar is mixed vs. the G10 currencies today. The dollar’s gains today: +0.74% vs. JPY, +0.51% vs. SEK, +0.40% vs. CHF, +0.21% vs. EUR, and +0.20% vs. DKK. Dollar losses are -0.41% vs. NZD and -0.06% vs. CAD and unchanged vs. the GBP and MXN.
Applications for mortgage’s declined by 11.4% through the week ending February 19th due to the recent rise in mortgage rates (borrowing costs increase as treasury yields move higher).
The dollar is higher today, its first daily gain following three consecutive losses. Support for the U.S. dollar index at 90.000 capped yesterday’s dollar weakness and provided the springboard for today’s mild rebound.
Looking at the G10 currencies the dollar’s primary gains are against the safe-haven CHF (+0.48%) and JPY (+0.26%). Other gains for the dollar: +0.33% vs. SEK, +0.19% vs. AUD, +0.07% vs. EUR & NZD.
USD/MXN: one exception to today’s dollar strength is vs. the peso which stopped its 6-day slide (decline of -3.93%) for a daily gain of 0.26%. Storm-related energy shortages impacted the Mexican manufacturing industry last week creating peso weakness last seen in November of last year. Natural gas shipments from Texas have resumed sooner than expected after last week's short-term weather related export ban.
Global markets continue the shift towards recovery from COVID-19. Recent movements in oil prices, industrial metals, treasuries, gold, silver, and equities all reflect an anticipation for growing economic activity.
The U.S. dollar index (DXY) Tuesday-Wednesday rally was short-lived and has now been entirely reversed with today’s decline of 0.35%. The DXY is back below the 55-day moving average and support at 90.000 is back in view.
AUD/USD: the Australian dollar led all moves overnight with a gain of 1.17% vs. the USD. AUD strength was attributed to higher 10-year yield forecasts, up to 1.9% from 1.55% by the end of 2021. Today’s high at 0.7867 is the strongest level since April of 2018 and today’s close will mark the Aussie dollar’s third weekly gain. Next resistance is at 0.7900, higher at 0.7990, and at 0.8100 (January 2018 highs). From a technical standpoint it is worth noting that the AUD/USD is trading just below the 100-period (monthly) moving average (0.7857) which should also provide some resistance.
NZD/USD is following the AUD higher, +1.01% today and is in line to close with its 5th weekly gain. Resistance at 0.7325 is within easy reach.
The GBP/USD is one of the week’s biggest movers with the pound gaining 0.79% and now trading above 1.4000 (last traded April 2018). The next target is likely 1.4150 before an attempt at 1.4200.
USD/CAD is lower by 0.48% and trading near the 2021 weekly lows just above 1.2600. Today’s close will be the lowest weekly mark since April 2018.
One bright spot for the dollar has been this week’s performance vs. the Mexican peso with the dollar gaining a total 2.22% in a string of five consecutive daily gains. Next resistance is nearby at 20.5000 and then 20.6000. The USD/MXN is now trading above the long-term trendline resistance tracing back to April of last year. Whether this is the start of a new trend remains to be seen, but in the meantime the USD/MXN is at the high end of a weekly range with support at 19.9500 and resistance at 20.6000.
The dollar has given back most of yesterday’s gains with the U.S. dollar index lower by 0.32% compared to yesterday’s gain of 0.49%.
The GBP pound is higher by 0.68% vs. the USD after making a fresh multi-year high overnight at 1.3985, the pound’s highest point since April of 2018. The GBP is on track to complete its 5th consecutive monthly gain. Next major resistance is just below 1.4200, near the highs from 2018.
The dollar’s other daily losses vs. the G10 currencies range between -0.31% (DKK) and -0.02% (CAD).
USD/MXN: one bright spot for the dollar is its weekly gain vs. the Mexican peso. The dollar is up by 2.00% for the week after adding 0.64% today. Weekly resistance is coming into view near 20.6000.
USD/CAD remains rangebound between weekly support at 1.2625 and resistance at 1.2750.
Oil prices made a fresh monthly overnight high at $62.26/barrel.
January Housing Starts were released today at 1580k, below the 1660k estimate. And Weekly Jobless Claims were 861k, above the 773k estimate.
The U.S. dollar index gapped higher today (opened higher than yesterday’s high) and is up by 0.49%. Gaps like this do not happen often and they are considered a key technical indicator of a change in market direction. Dollar sentiment turned higher early yesterday following higher treasury yields. It is still too soon to know if the dollar’s year-long down trend has come to an end, but the dollar continues to distance itself from the January 6th low of 89.209.
The dollar has gained against the full list of major currencies. The biggest gains are vs. the MXN (+0.99%), NOK (+0.94%), and ZAR (+0.87%). Other gains are +0.60% vs. CHF, +0.58% vs. EUR, +0.41% vs. GBP, +0.37% vs. AUD, and +0.32% vs. CAD.
Economic data for the U.S. released today showed January PPI higher than the forecasts in every category. The key PPI Final Demand MoM was reported at +1.3% (+0.4% estimate). PPI is one of the primary indicators for inflation. January Retail Sales also outperformed, +5.3% vs. +1.1% estimate.
Equities are lower, and oil prices are at their highest level in 13 months at $60.13. Gold and silver are down.
The U.S. dollar index made a run higher this morning, trading as high as 90.742 for a gain of 0.36%. But the dollar’s rebound was brief as dollar shorts pounced on the opportunity to add to their short positions at better levels. The dollar index is now unchanged for the day (trading at yesterday’s closing price) and is set to close the week with a decline of 0.68%.
The GBP/USD is higher by 0.25% with the pound in line to close at its highest monthly level in almost two years (March of 2018).
The dollar’s other losses are once again concentrated vs. the commodity currencies, primarily due to oil prices which have moved higher by 2.21%. Oil was lower by 1.43% at one point during the overnight Asia/early European session but has since reversed course. The term for today’s price action in oil is an ‘outside day’, a phenomenon where the market traded below yesterday’s low and higher than yesterday’s high in the same day. The last ‘outside day’ in oil was the precursor to a gain of 8.76%.
The NOK, SEK, AUD, MXN, and CAD are now trading higher vs. the dollar by an average of 0.30%.
This week’s gains vs. the USD:
AUD/USD: a close today above 0.7759 will mark the highest weekly point for the AUD since March of 2018.
USD/MXN: the peso is on track to
test support at 19.5700.
USD/CAD: a close below 1.2683
today will be the Canadian dollar’s strongest weekly point since April 2018.
*The arrows indicate how the base currency performed against the counter currency overnight. This document is for information purposes only and does not constitute any recommendation or solicitation to any person to enter into any transaction or adopt any trading strategy, nor does it constitute any prediction of likely future movements in exchange rates or prices or any representation that any such future movements will not exceed those shown on any illustration. All exchange rates and figures appearing are for illustrative purposes only. You are advised to make your own independent judgment with respect to any matter contained herein.