US dollar disappoints on falling yields

Wednesday 09 November 2022 07:03

Sunrise over Canary Wharf

With most of the market’s attention on mid-term US action, it can only be described as minimal.

There was no real catalyst for any of the moves we saw yesterday, with some of the moves being technical in nature.

It was another positive day for European markets yesterday, with the DAX closing above its 200-day SMA for the first time since the 20e January of this year, “in a sign that the lows of the year may well be here”, as Michael Hewson, chief market analyst at CMC Markets UK, put it this morning

He pointed out that the FTSE100 had “a disappointing underperforming day” due to a sharp decline in the price of oil which weighed on oil majors BP and Shell.

“The drop in the price of oil appears to be driven by rising Covid infection rates in China, which appears to sting optimism around the reopening narrative that has driven Brent crude prices to $100 a barrel in beginning of the week,” Hewson explained. .

Meanwhile, U.S. markets also had another strong day, ending higher for the third day in a row, albeit far from the day’s highs, with gains “relatively modest”, as Hewson put it, “despite a fall in Treasury yields with markets trading relatively cautiously ahead of tomorrow’s CPI report.”

“This pullback suggests we will see a lower European opening this morning,” he said.

American dollars

The US Dollar had a disappointing day as yields fell, prompting “speculation that we might have seen a short-term top given that on the US Dollar Index , we struggled to match the highs we saw back.” in September,” Hewson said.

The weakness was particularly noticeable against the Japanese Yen, with the greenback retesting recent lows and the 50-day SMA between 145.10 and 145.30.

Hewson said “the pound also suffered a brief rise following reports that the UK and EU were set to make a breakthrough on trade rules around the Northern Irish border.”

Gold, Metals and Crypto

Additionally, gold prices jumped above $1,700 and hit 1-month highs, after sharply breaking above the 50-day SMA which overall managed to contain the decline from the highs. Of March.

“If we break above the $1,730 level, we could see further significant gains for the yellow metal in what could turn into a technical move towards $1,800 an ounce,” Hewson said.

Meanwhile, cryptocurrencies also had a rough day after cryptocurrency exchange Binance reached a deal to buy fellow crypto exchange FTX after the latter ran into liquidity issues, when users rushed to withdraw funds.

“Just a few months ago, Robinhood announced that FTX had taken a 7.6% stake in the company,” Hewson recalls.

“Bitcoin fell to two-year lows, before pulling back from those lows, as we also saw double-digit percentage losses on the crypto trail, from Dogecoin to Solana,” a- he concluded.