Once again we write about a further declining tendency of the dollar on Forex till the end of this year. Moreover, this time a good indicator of that tendency are the long-term Treasuries, in particular...
Once again we write about a further declining tendency of the dollar on Forex till the end of this year. Moreover, this time a good indicator of that tendency are the long-term Treasuries, in particular 10-year US Treasury notes the rise of which was observed during the recent trading days. In other words we emphasize the fact that during the last few days investors were actively coming back to long-term securities which clearly indicates that the Wall Street is aiming at preserving the low interest rates in the US for some time. For the Forex market participants all this results in prerequisites for a subsequent surge in EUR/USD and GBP/USD based on the fact that the interest rate differential between Europe and the US or between emerging markets and the US will most likely grow in the middle-run. This creates prerequisites for flying away from dollar assets, as well as using dollar as a carry trade currency.
December futures for the price of the 10-year US Treasury notes (CBOT)
Spread between the 10-year and 2-year US Treasury notes (Bloomberg)
Going further with the Treasuries indicator best reflecting expectations regarding the future interest rates, we can emphasize the spread between the 2-year and 10-year US Treasury notes. The given indicator has been moving in the range of 200-230 points during the past 3 months. The upside border of the given range reflects investor confidence of the US economy and the hopes that the Fed will sooner or later decide on normalizing monetary policy; the downside border, on the contrary entails that the market has reached another extremity, having prepared for the US monetary policy being “soft” for a long time.
Eurozone yield curve (3Month Euribor, Eurex)
Dynamics of the EUR/USD pair can currently be easily forecasted based exclusively on the technical analysis. In particular, we mean the realization of the “pennant” technical figure on the euro daily chart. We can also proceed from the fact that during the last 4 weeks EUR/USD was consolidating in the range of 1.37-1.41, why then after breaking through the upside border the pair cannot soar for about 2 weeks or so. Namely, to continue talking about the uptrend in EUR/USD, we would like to underline the resistance levels at 1.45, 1.46 and 1.47.
Speaking of the euro rise deterrent factors, we again resort to a sharp fall of the Greek, Irish and Portuguese bond prices, which reminds us one more time that the European sovereign risks have not gone anywhere.
UK yield curve (3Month Sterling, %)
Speaking of GBP/USD we now wait for the publication of the MPC meeting “minutes” on November 17. If the given protocol doesn’t indicates a rise in the number of asset repurchase program supporters, then we will start writing about a possible surge in November up to 1.6450.
Konstantin Bochkarev, currency strategist
of company Admiral Markets.
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