We move past an important week for markets, one where a one-two punch from Jay Powell’s FOMC presser and a very strong nonfarm payrolls report have essentially closed the door on a March rate cut. With US economic exceptionalism coming back into the narrative, we see this play out in the bond market with the US 2-year Treasury pushing back to the top of the range at 4.36%, with yield rising faster than its G10 counterparts.
The USD has found some fine form in a backdrop of US rate expectations repricing and US yield premium working in its favour, and we see the Dollar Index (DXY) closing higher for a fifth consecutive week. We have seen some big technical breaks in the USD pairs and the upside would likely have been even more pronounced had we not seen the S&P500 push to new highs and the VIX index remain below 14%.
With the yield premium commanded for US 2yr Treasury over German 2yr bonds rising to 180bp, we’ve seen EURUSD close at new run lows in the trend that started on 11 January. We see price testing the channel lows, subsequently longs need a bounce here or we risk testing the 8 Dec pivot low of 1.0723. While much of the USD flow has been driven by US rates repricing (notably with SOFR futures Dec23 – Dec 24) rising to -131bp, the prospect of a further widening of US-GE yields spreads seems likely and therefore further downside in EURUSD could be a theme this week.
Crude Oil weighing on NOK
The NOK was the weakest play in G10 FX last week, with a weaker Brent tape part impacting here. Flick to the daily chart of SpotBrent and we see the series of higher lows from the 13 December breaking down and price pulling into the heavy congestion zone. Consolidation may be on the cards but further weakness in crude oil would likely weigh on the NOK.
NZDUSD is also of note having completed a bear flag pattern, with the flow arguing for a continuation towards 0.5900. AUDUSD has completed a head and shoulders reversal, offering a target towards 0.6250. USDJPY eyes a test of the January highs, where a break of 148.81 would suggest a move to 150 is on the cards.
- No let-up in capital fleeing the US
- Tariff to-and-fro sparks run from US assets
- Record flows into gold ETFs as price hits new USD high
$2k on the cards for Gold?
Gold ended a run of consecutive days higher on Friday but the set-up on the higher timeframes remains choppy. That said, a renewed push higher in both the USD and US real rates this week and $2k could easily be on the cards. We can look at US 10yr real rates (i.e. the 10yr US Treasury minus 10yr expected inflation) and a break of 1.90% should put 2% back on the table.
On the equity front, the ASX200 was a stellar performer last week and will be a key focal point this week with ASX200 1H24 earnings starting to trickle in and the Reserve Bank of Australia (RBA) statement also in focus. The S&P500 and Dow Jones30 also performed well and pushed to new highs. Pullbacks are tight in this bull market and while it remains hard to put new money to work on the long side up here, shorting for those who are not scalpers or day traders remains a low probability outcome at this stage.
Good luck to all.
