– Main source of risk hatred past month has been geopolitical in nature; with geopolitical tensions subsiding momentarily, investors have been withdrawal protected breakwater resources and returning to riskier positions.
– US equity marketplace miscarry going hand-in-hand with US Treasury yields rising; deduction is that US yields forsaken on protected breakwater demand. Further alleviation in risk ardour should boost US yields further, lifting a US Dollar.
– Retail throng positioning has eased, though stays nearby impassioned levels in a few USD-pairs.
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The mercantile calendar is still once again for a US Dollar, with a mostly ignored Producer Price Index imprinting a usually critical information recover for Wednesday. The early-week recover peace will finish tomorrow, however, with a Aug US Consumer Price Index and a Aug US Advance Retail Sales news on Friday.
Until these dual pivotal information array are expelled – culminating in an refurbish to a Atlanta Fed’s GDPNow tracker on Friday – a US Dollar is left to a whims of a ubiquitous newsflow and marketplace sentiment. Fortunately for a US Dollar, these factors seem to be branch in a favor.
The dump in a US Dollar in late-August coincided with a thrust in US Treasury yields – not most of a warn there. But a dump in US yields coincided with US equity markets descending back, a pointer that cost developments were tied to a same source: a newswire churning out stories about rising geopolitical tensions between North Korea and a United States.
Now that geopolitical tensions seem to be subsiding in a near-term, a change to safer resources has stopped. Investors are no longer transfer US equities for a relations reserve of US Treasuries, and in turn, US yields have been given room to miscarry fast alongside stocks. Accordingly, offer gains by US equities should lift adult US yields further, that will usually offer to a US Dollar’s benefit, quite opposite a reduce agreeable protected breakwater currencies, a Japanese Yen and a Swiss Franc.
It’s critical to honour a technicals of a market, that so distant advise a US Dollar hasn’t bottomed yet. Mainly, a DXY Index hasn’t sealed above a daily 21-EMA given Jun 22 (during that time EUR/USD hasn’t sealed next a daily 21-EMA given Jun 22 possibly (no warn there, deliberation a Euro is 57.6% of DXY). Confirmation stays to be seen for a DXY Index low until a Aug 25 bearish outward engulfing bar is privileged out during 93.44.
See a above video for technical considerations in a DXY Index, EUR/USD, GBP/USD, USD/JPY, USD/CHF, and Gold.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
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