The Dollar hit a two-month high against a basket of major currencies on Friday as rising yields added to US Treasury debt’s advantage over other major government bonds, drawing buyers looking for higher returns. Benchmark Treasury yields moved as high as 5.24% last week, making US debt more attractive to US and foreign buyers.
The surprise narrowing in the US trade deficit to $58.5B in April, from $62.4B confirmed that net external demand is likely to make a positive contribution to 2Q GDP growth.
Bank of Japan will hold a policy meeting next Friday but is not expected to lift interest rates from their current 0.5%, the lowest level in the industrialized world.
News and Events:
The Dollar hit a two-month high against a basket of major currencies on Friday as rising yields added to US Treasury debt’s advantage over other major government bonds, drawing buyers looking for higher returns. Benchmark Treasury yields moved as high as 5.24% last week, making US debt more attractive to US and foreign buyers and prompting investors to ditch expectations of a Federal Reserve interest rate cut this year. Government bond yields have been climbing on the view that the global economy remains healthy and central banks will keep raising interest rates to cool off inflation.
The surprise narrowing in the US trade deficit to $58.5B in April, from $62.4B confirmed that net external demand is likely to make a positive contribution to 2Q GDP growth. The decline in April’s trade deficit was driven almost exclusively by a 2.4% drop in non-oil imports, which is likely to be reversed in May. The biggest decline was the 17.7% drop in pharmaceutical imports, which reversed an even bigger gain last month.
Analysts said �investors who had aggressively bet on Fed rate cuts are abandoning ship and now we are in a situation where people are beginning to talk about possible rate hikes�.
High Yield currencies continued to gain. The New Zealand Dollar rose 1.33% to 0.7641, extending gains booked a day ago when the Central Bank surprised markets by hiking interest rates to 8%.
Bank of Japan will hold a policy meeting next Friday but is not expected to lift interest rates from their current 0.5%, the lowest level in the industrialized world.
Today’s Key Issues (time in GMT):
08.30 GB May Producer Price Input 0.6% vs 0.7% (MoM)
08.30 GB May Producer Price Input 1.0% vs -0.2% (YoY)
08.30 GB May Producer Price Output 0.4% vs 0.5% (MoM)
08.30 GB May Producer Price Output 2.5% vs 2.5% (YoY)
08.30 GB May Producer Price Output Core 0.3% vs 0.1% (MoM)
08.30 GB May Producer Price Output Core 2.3% vs 2.3% (YoY)
08.30 GB DCLG UK House Prices 11% vs 10.9%
12.30 CAD April new Housing Price Index 0.3% vs 0.3% (MoM)
12.30 CAD 1Q Capacity Utilization 83.5% vs 82.5%
14.00 EUR ECB’s Trichet speaks in Brussels
23.50 JPY May Domestic Corporate Goods Price Index 0.5% vs 0.8% (MoM)
23.50 JPY May Domestic Corporate Goods Price Index 2% vs 2.2% (YoY)
The Risk Today:
EurUsd pullback from last Tuesday’s 1.3554 high clears support at 1.3392 and risks further pullback towards 1.3247 end March low. Meanwhile, resistances are located at 1.3430 Friday’s high and 1.3513 Thursday’s high.
GbpUsd pushed through 1.9823 former support (61.8% retracement of the 1.9733-1.9969 rise) and the breakout high from May 31. This paves the way for a deeper retreat towards 1.9677 trend low. This could resume bear trend towards 1.9659 (50% retracement of the 1.9184 to 2.0134 advance) and further setback towards 1.9592, April 9 low. Resistance zone is located at 1.9793 Friday’s high.
UsdJpy is holding onto 120.86 support but the recent rebound remains capped at 121.94 Tuesday’s high. A return above this resistance area is required to bring the 122.14 trend high back into focus. Bull trend remains intact with the focus on the January-February 122.10 to 122.22 highs. Not far off is 122.38 (61.8% of 135.18-101.65 big 5 years decline).
UsdChf has held above the 1.2125 May 15 low. The sharp recovery from Wednesday 1.2148 low clears 1.2248 (61.8% retracement of the 1.2311-1.2148 decline). Sustained move above this area would put 1.2438, February 22 high into focus.
<!-- 
→
Resistance and Support:
By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland