The dollar index (DXY) has appreciated by 1.45 percent in the last two days, reportedly due to the unwinding of shorts ahead of the quarterly closing. While that may be true, the unwinding of shorts could be more due to easing receding trade war fears, easing tensions in the Korean peninsula and a sharp drop in the bond yields across major markets.
The German 10-year bond yield dropped 20 basis points in the last 30 days, while the Spanish bond yield has tanked 50 basis points in the past month. Further, the EONIA futures witnessed a key bullish breakout. Clearly, the investors are pricing-in a delay in ECB tightening. Meanwhile, Bank of Japan (BOJ) continues to taper the taper talk.
So, the USD may continue to recover the lost ground next quarter, tracking the decline in the inflation/growth expectations in the major markets, meaning the focus will likely shift back to yield differential, unless US-China backdoor talks collapse, leading to a full-blown trade war.
Also note, the first quarter has almost always been a bad one for the greenback. So, the 2.3 percent Q1 drop isn't surprising. As for today, the FX markets will likely remain calm on account of Easter lull.
What's brewing in the majors?
EUR/USD: For the third straight month, the spot has failed to chew through the supply at/above the weekly 200-MA (moving average), the monthly chart shows. Also, the 100-month MA is closing in on the 200-month MA in the EUR negative manner. That said, the 10-month MA is biased bullish and will likely restrict the downside around 1.20 next month.
GBP/USD: The spot is set to end the first quarter above 1.40. The 5-month MA and 10-month MA are biased bullish, so the spot looks set to test the descending 50-month MA in the next quarter. Also, the hourly chart shows a bullish price-RSI divergence, meaning the decline of the recent high of 1.4245 to 1.4030 will likely be short-lived.
USD/JPY: As discussed here, the bad news has been largely priced-in and the bears may make a comeback only if the S&P 500 finds acceptance below the 200-day MA. That said, the monthly chart shows the bears remain in control, given the spot trades well below the key ascending trendline (drawn from the September 2012 low and September 2016 low) resistance (former support).
Major news
Tokyo CPI: Japan core inflation for Tokyo comes in at 0.8, under expected 0.9
Japan's Aso: Japan must avoid entering FTA with the US
Japan household spending seen rising in poll - Reuters
Japan's job availability falls for first time since 2012 - Nikkei Asian Review
Oil: Everything is gravitating towards $50 a barrel: JP Morgan
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD stays in positive territory above 1.0850 after US data
EUR/USD clings to modest daily gains above 1.0850 in the second half of the day on Friday. The improving risk mood makes it difficult for the US Dollar to hold its ground after PCE inflation data, helping the pair edge higher ahead of the weekend.
GBP/USD stabilizes above 1.2850 as risk mood improves
GBP/USD maintains recovery momentum and fluctuates above 1.2850 in the American session on Friday. The positive shift seen in risk mood doesn't allow the US Dollar to preserve its strength and supports the pair.
Gold rebounds above $2,380 as US yields stretch lower
Following a quiet European session, Gold gathers bullish momentum and trades decisively higher on the day above $2,380. The benchmark 10-year US Treasury bond yield loses more than 1% on the day after US PCE inflation data, fuelling XAU/USD's upside.
Avalanche price sets for a rally following retest of key support level
Avalanche (AVAX) price bounced off the $26.34 support level to trade at $27.95 as of Friday. Growing on-chain development activity indicates a potential bullish move in the coming days.
The election, Trump's Dollar policy, and the future of the Yen
After an assassination attempt on former President Donald Trump and drop out of President Biden, Kamala Harris has been endorsed as the Democratic candidate to compete against Trump in the upcoming November US presidential election.