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Week Ahead: Dollar rally continues as US yields rise

market, video, forecast March 6, 2021 2:28 am today

a taperless tantrum could continue across financial markets now that it seems clear Fed Chair Powell won’t react until he sees disorderly market conditions or if financial conditions tighten further.  Positive economic, such as this past employment report might continue to fuel optimism about a economic outlook also that could raise expectations that a Fed become raise rates sooner.

How much stronger become a outlook get once Biden’s CVD relief bill passes?

become a ECB increase its purchases under its PEPP program also focus their purchases over a near term?

Momentum from a OPEC+ shocker over output could cause oil prices to overheat

Country

US

Financial markets become has their hands full trying to balance a impact on another massive relief bill, an improving labor market, also a bond market selloff that appears to has no signs of slowing down.  a USD has been running wild following a move inside Treasuries also most signs are suggesting that move could continue.

Democrats are close to finalizing a terms of President Biden’s CVD relief bill, while some states are already reopening.  Pressure is on for Democrats to quickly deliver this relief bill also to quickly move onto infrastructure spending.  Texas become completely reopen on Wednesday also lift a mask mandate, which means more states become become right behind them.  Virus variants remain a short-term risk, but so far it is not slowing down a reopening theme for lot of states.

a Fed is fully prepared for a temporary jump inside prices, but a bond market might use that as an excuse to drive bond yields higher also move forward Fed rate hike expectations.  On Wednesday, a February headline annual CPI reading is expected to increase from 1.4% to 1.7%.

EU
EU debt markets has tightened again this week but a noise from officials seems to indicate they are not comfortable with government bond yields rising. With Jerome Powell seemingly taking an opposite view, risks are rising that EUR/USD could fall next week. It is testing support at 1.1960 also targets 1.1800 initially, possibly 1.1600.  

On that note, a latest ECB rate decision on Thursday assumes greater importance. If a bond tantrum continues ECB officials may send a strong signal that a ECB become increase a pace of bond buying if necessary, to cap rate increases. Negative Euro.

UK

a UK budget was generally well received with a inevitable future tax rises expected to fall on a business sector. inside a near term a government become keep a fiscal stimulus taps fully open until September. UK GDP also Industrial Production on Friday could surprise also become less worse than expected which become become supportive of equities also a Pound.

Sterling has fallen this week return into its rising 6-month channel. It is outperforming a EU as BoE officials stay silent on rising Gilt yields. Only a fall through 1.3800 by GBP/USD suggests a deeper correction to 1.3500 could occur. a faster pace of vaccinations also a widening yield differential become keep EUR/GBP under pressure also it could fall through 0.8500 inside a coming week.

Turkey

a Lira has continued falling versus a US USD also is acutely vulnerable to an EM inflation tantrum if US bond yields keep rising. Rising DM yields leave countries such as Turkey, with high inflation already, weak currency accounts also high levels of foreign currency denominated debts inside a tenuous position.

Read More :  New Zealand Employment indicators for February 2021 are unchanged y/y

If a US bond tantrum continues next week a Lira become come under sustained pressure also could fall towards 8.0000 if a EM trickle turns into a flood. inside such a scenario a central bank become likely intervene to sell USD/TRL also if that doesn’t work, spring a surprise rate hike or reserve requirement increase on markets. That may staunch a losses but become only become a short-term fix.

Turkish Industrial Production on Friday become become subsumed by events elsewhere, notably a US.

China

a National People’s Congress has reinstated a GDP growth target of 6.0+% also ramped up spending inside technology R&D to increase self-reliance. On a margins this has supported China stocks as markets suffer from a bond tantrum globally. More importantly, they has signaled an interest inside joining ASEAN’s RCEP which was positive for Asian equities including China. Markets inside a coming week though become become vulnerable to EM bond market developments, also rising oil prices threaten to crimp growth slightly.

Given a attention on inflation globally at a moment, China’s inflation release on Wednesday become become a week’s data highlight. A higher than expected print become become a negative for China equities inside a currency climate.

a PBOC has kept a USD/CNY fixing almost unchanged around 6.4600 this week, despite signs of USD strength inside a DM space. It raised a fix to 6.4900 today though also a move by USD/CNY above 6.5000 inside response to a US bond-tantrum this week could set off a cascading sell-off of regional Asian currencies.

India

A quiet data week with bank lending released on Friday. India’s markets become move to a nuances of a US bond market though inside a coming week. With a fragile banking system, high debt levels also inflation, also a weak current account that become become pressured by a rise inside oil prices, a Indian Rupee is one of Asia’s most vulnerable currencies to a taper-tantrum, along with Indonesia. Equity markets become not escape a rapid fall by a INR.

USD/INR is testing its 100-day moving average at 7.5900, having already fallen heavily inside a past two weeks. A full-blown EM rout inside a coming week could see USD/INR rise quickly to 8.0000 prompting central bank intervention.

Australia & New Zealand

Australian also New Zealand bond yields has also spiked, notably inside Australia, inside response to a hikes seen inside a US. That has put downward pressure on both stock markets which is likely to continue into next week. Excellent Australian economic data over a past few days has been completely ignored, as has strong commodity prices, highlighting that bond market developments are a most important directional driver at a moment.

Reserve Bank of Australia Governor Lower speaks on Thursday with a data calendar of both countries second-tier. His remarks become become closely followed given developments also markets become become searching for any hint of more aggressive bond market intervention, or an acceptance of inflationary pressures. a speech gives Australian equities a strong binary outcome.

US USD strength has left both a AUD/USD also NZD/USD teetering on multi-month support today at .0.7700 also 0.7150 respectively. A weekly close below there this evening signals 200+ point moves lower for both inside a coming week.

Japan

Heavy data week with Coincident Index, Current Account also GDP. a effects of high oil prices may show up inside a data this week also become become a negative at a margins for equities. Japan has extended its Corona state of emergency, another negative.

Read More :  Pres. Biden: US will have enough vaccine for public by end of July

a Nikkei 225 has broken 4-month support  at 29,300 as equities globally retreat. With Japan investors amongst a most heavily invested also exuberant, a Nikkei is inside danger of a material fall inside a coming week if bond rates elsewhere continue moving higher. Even if they don’t, a technical picture remains very negative. a Nikkei can fall to 27,000 inside quick time this coming week.

A widening US/Japan rate differential spurred USD/JPY to climb to 108.00. BoJ officials has expressed concern about potential rises inside JGB yields, with a benchmark nudging a top of a BoJ yield control band. Assuming a BoJ caps rates also US ones continue to rise, USD/JPY can move higher to 110.00 inside a week ahead.

Markets

Oil

a aftermath of a OPEC+ surprise decision not to raise output next month could support much higher crude prices.  a oil market is poised for a strong tightening of a market as OPEC+ supply become lag demand over a next few months.  a Saudi prince doesn’t seem to become worried about US shale also that means oversupply concerns for this year are gone. 

Saudi Arabia’s decision to restrain production also maintain a 1 million b/d voluntary production cut has become a ‘whatever it takes’ moment.  Brent went from overbought to it’s time to buy more.  Brent forecasts become become seeing massive upgrades over a next week.  a US is reopening a economy a lot of faster due to CVD vaccine success also that become trigger a strong pickup inside fuel demand over a next couple of months.

a enthusiasm inside a energy market got another boost from a stronger-than-expected nonfarm payroll report that shows that Americans are closer to pre-pandemic behavior that become drive strong demand for crude.  WTI crude is over a $65 a barrel level also a momentum could become there for prices to target a $70 level next week.

Gold

Gold is still inside a danger zone also if a USD has a massive move over a next week or two, that could trigger a $100+ drop. Gold bulls are counting on a Fed to eventually push return over a rise inside yields.  a Fed doesn’t meet until March 17th so with a blackout period upon us, a bond market might want to test a resolve of a Fed also that could drag gold down.

Bitcoin

Bitcoin has relatively been an easy trade over a past few months, rising on big-money demand also selling off when a broader markets has some panic-selling, but that could change now that regulatory fears are creeping return.

lot of crypto-watchers are concerned over how a Biden administration become handle Trump’s anti-money laundering effort that would force to reveal identities of cryptocurrency holders.  If Treasury Secretary Yellen moves forward with a regulation to keep records on who owns cryptocurrencies, that would become a major blow to Bitcoin, possibly triggering an immediate 20% plunge.  a opposition is strong for this regulation also become likely become dragged over a lengthy evaluation process.

Biden’s SEC Chair pick Gary Gensler become also has a big impact on regulation, also he is still viewed as crypto-friendly, so probably not likely delivering a crushing blow that cripples a cryptocurrency market.

Key Economic Events

Saturday, March 6

– a annual session of China’s National People’s Congress resumes inside Beijing

Sunday, March 7

-No calendar events today.

Economic Data:

  • China foreign reserves

Monday, March 8

– BOE Governor Bailey discusses a economic outlook

Economic Data:

  • US wholesale inventories
  • Japan BoP, bank lending, bankruptcies, leading index
  • Germany Industrial production
  • Spain Industrial Production
  • Norway Industrial Production
  • Greece GDP
Read More :  PIMCO says developed economies may require stimulus for longer than currently appreciated because of China winding back stimulus

Tuesday, March 9

-a Organization for Economic Cooperation also Development posts its interim economic outlook.

Economic Data:

  • Mexico CPI
  • Hungary CPI
  • New Zealand manufacturing activity, ANZ business confidence,
  • Australia NAB business confidence/conditions
  • Japan GDP, cash earnings, household spending, money stock, machine tool orders
  • China money supply, new yuan loans, manpower survey
  • Eurozone GDP
  • South Africa GDP
  • Germany trade
  • Italy industrial production

Wednesday, March 10

– Reserve Bank of Australia Governor Philip Lowe gives a speech inside Sydney.

– EIA crude oil inventory report

Economic Data:

  • Canada rate decision: Expected to keep interest rates steady at 0.25%
  • US CPI, monthly budget statement
  • China PPI, CPI
  • New Zealand REINZ house sales
  • Industrial production: France, Estonia, Slovenia
  • Australia Westpac consumer confidence
  • Russia CPI
  • Czech CPI
  • Norway CPI
  • Denmark CPI
  • Turkey unemployment

Thursday, March 11

-Bank of Canada Deputy Governor Schembri speaks

-Norway central bank Deputy Governor Bache gives a speech about digital central bank currency

-Swiss government updates economics forecasts.

-OPEC monthly Oil Market Report includes demand forecasts also production estimates.

Economic Data:

  • US initial jobless claims
  • ECB Rate Decision: Expected to keep interest rates unchanged
  • New Zealand food prices
  • Trade balance: Israel, Hungary
  • Japan PPI
  • Sweden unemployment
  • Current account: South Africa, Turkey
  • South Africa manufacturing production
  • Russia gold also forex reserve

Friday, March 12

Economic Data:

  • US University of Michigan consumer sentiment, PPI
  • Canada unemployment
  • New Zealand Manufacturing PMI
  • UK GDP, industrial production, trade
  • Hong Kong PPI, industrial production
  • Eurozone Industrial production
  • India Industrial Production
  • UK Industrial Production
  • Turkey Industrial Production
  • Mexico Industrial Production
  • German CPI
  • India CPI
  • Spain CPI
  • Russia Trade data
  • Spain retail sales

Sovereign Rating Updates:

– Austria (S&P)

– Norway (S&P)

– Portugal (S&P)

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are a authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk also not suitable for all. youre could lose all of your deposited funds.

Ed Moya

Ed Moya

Senior Market Analyst – a Americas at OANDA

With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-a-minute intermarket analysis, coverage of geopolitical events, central bank policies also market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks also cryptocurrencies.

Over a course of his career, Ed has worked with some of a leading forex brokerages, research teams also news departments on Wall Street including Global Forex Trading, FX Solutions also Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data also corporate news.

Based inside New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business also Sky TV. His views are trusted by a world’s most renowned global newswires including Reuters, Bloomberg also a Associated Press, also he is regularly quoted inside leading publications such as MSN, MarketWatch, Forbes, Breitbart, a New York Times also a Wall Street Journal.

Ed holds a BA inside Economics from Rutgers University.

Ed Moya

Ed Moya

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