US benchmark 10-year Treasury yields rose for the seventh consecutive week. Such a streak was seen at the start of 2018 and late Q1/Q2 2009 and 2004, but none longer. The US dollar was mostly firmer, but its gains were concentrated against the Scandis and euro. The Norwegian krone's roughly 1.4% decline against the dollar was the most among the majors, even though the central bank brought forward its first hike to Q4 this year and revised path, implies two hikes next year. The Japanese yen was the strongest of the major currencies, gaining about 0.2%, to end a four-week slide.
What is striking about the rise in US yields last week is that they took place as oil prices tumbled. May WTI fell by about 8.25%, the most since last October. The breakdown in the co-movement is notable. Other factors influence long-term US Treasury yields besides oil-driven inflation expectations. We note that the significant fiscal stimulus means an endless supply of US Treasuries. Next week the US will raise $200 bln outside of the bill market, and banks lose the exemption for the supplemental leverage ratio.
Shifting macro drivers and a relatively light economic calendar (outside of preliminary March PMI), technical considerations may play a more important role. Let's turn our attention to the technical outlook now.
Dollar Index: The Dollar Index continues to bump against the 92.00-level. It saw some shallow intra-day penetration, but it has closed above it only once since falling through it at the end of last November, and that was on March 8. Even though momentum indicators remain at elevated levels, there is scope for marginal new highs in the Dollar Index. It reached 92.50 on March 9, and we have been targeting 92.75, which is about where the 200-day moving average and upper Bollinger® Band begin the new week. The 92.30-92.50 area may offer initial support.
Euro: The single currency has put in a potential double top at $1.1990. The neckline is seen near $1.1880, and it frayed before the weekend. The measuring objective is in the $1.1770 area. The 200-day moving average was tested earlier this month, and it held. It is around $1.1855 now. The MACD has flatlined in its trough, while the Slow Stochastic is turning down after the consolidative price action lifted it from over-sold territory earlier this month. A move above $1.2000 (and 20-day moving average) would raise the technical tone.
Japanese Yen: Despite the rise in US yields that seemed to have been lifting the dollar against the yen, the greenback snapped a four-week advance. It was only the second weekly decline since the third week of January, and it was minor. The dollar recorded last week's lows ahead of the weekend just above JPY108.60, and support extends toward the JPY108.35 area. It set the high for the move at the start of the week near JPY109.35. The MACD has rolled over, while the Slow Stochastic has gone sideways in elevated territory since the beginning of the month. The dollar was trading around JPY110 in January 2020, and that still seems like a reasonable target.
British Pound: Sterling also appears to have put in a double top near $1.40. The neckline at $1.3800 was approached before the weekend. A convincing break gives a measuring objective of $1.36. Some technicians may see a $1.38-$1.40 trading range, and the downside break out would also project to $1.3600. The MACD continues to trend lower, but the Slow Stochastic bottomed around on March 10 and moved higher. The lower Bollinger Band will begin the new week near $1.3780. With last week's 0.6% decline, sterling has fallen in three of the past four weeks after it rallied in nine of the previous 10 weeks.
Canadian Dollar: The US dollar was sold to new three-year lows against the Canadian dollar on March 18 (~CAD1.2365) before reversing to close above the previous session's high. This key reversal saw follow-through action ahead of the weekend, and the greenback approached CAD1.2550, which is the halfway point of this month's decline that began near CAD1.2740. The next retracement objective (61.8%) and the 20-day moving average are in the CAD1.2580-CAD1.2600 band. The MACD and Slow Stochastic are turning higher. The bulk of the price action this quarter has taken place between CAD1.2600 and CAD1.2800, and a move back into this range seems reasonable.
Australian Dollar: The Aussie peaked in late February, a little above $0.8000. It bottomed earlier this month ahead of $0.7620 and traded higher over the past couple of weeks. It set the high for the month in the aftermath of the dovish FOMC near $0.7850, shy of the (50%) retracement objective ($0.7860), and reversed lower. It fell the following session to around $0.7720 before the weekend. The MACD has flatlined, and the Slow Stochastic is has continued to trend higher. Still, the more impulsive move is on the downside, which appears to be the path of least resistance. A break of the $0.7700 area would re-target the lows.
Mexican Peso: The dollar edged lower against the peso before the weekend. It was the seventh decline in the past ten sessions. Over these two weeks, the dollar has fallen from almost MXN21.6360 to MXN20.2830. The momentum seemed to stall as the dollar moved below MXN20.30, which corresponds roughly the (61.8%) retracement objective of the rally from the year's low on January 2 (~MXN19.55). The MACD is still declining, but the Slow Stochastic appears to be bottoming. The central bank meets next week. The fact that Brazil and Turkey hiked rates more than expected, and unexpectedly Russia raised rates a quarter of a point and signaled another one was likely, may discourage Banxico from cutting rates. Inflation is elevated, and the peso recovery in H2 20 (~15.5%) stalled so far this year (-2.5%). A move above the MXN20.80 area could target the MXN21.10 area a retracement objective and the 200-day moving average.
Chinese Yuan: The dollar rose against the Chinese yuan for the fourth consecutive week. The close before the weekend (~CNY6.5095) was the highest weekly settlement so far this year. At the same time, the magnitude of the move should not be exaggerated. The dollar has risen by about 1% over these four weeks. Year-to-date, the yuan is up less than 0.3%. Only three other emerging market currencies have appreciated against the US dollar this year (Turkish lira almost 3%, the Indian rupee 0.75%, and the Russian ruble 0.3%). The dollar was mainly confined to a CNY6.43-CNY6.50 trading range in January and February and moved to a higher range in early March. The lower end of the new range seems to be around CNY6.47-CNY6.48, and the upper end might be near CNY6.55. Earlier this month, the offshore yuan (CNH) was stronger than the onshore yuan (CNY), but that switched in the last two sessions. It should be monitored and could hint at a change in sentiment if sustained.