US Dollar Retreats as Treasury Yields Surge

US Dollar Retreats as Treasury Yields Surge

The US Dollar made substantial strides, primarily due to Treasury yields climbing towards multi-year highs. US retail sales in September surged by 0.7% month-on-month, surpassing the 0.3% consensus and outperforming August’s 0.6% growth.

Treasury Yields Soar

Treasury yields across various maturities experienced significant upticks. The 5- and 7-year bonds saw substantial gains, each rising by approximately 15 basis points. The 2-year Treasury note reached 5.24% for the first time since 2006, while the benchmark 10-year note came close to the 4.88% peak witnessed earlier this month, marking the highest level since 2007.

Geopolitical Tensions and Precious Metals

As tensions escalate in the wake of a rocket attack on a Palestinian hospital, spot gold surged to a one-month peak above $1,940. The fallout from this incident has led to strained relations, contributing to the postponement of the meeting between US President Joe Biden and Arab leaders.

Crude Oil Gains

Crude oil prices surged by over 2%, approaching the highs observed last week. The WTI futures contract traded at $88.80 per barrel, while the Brent contract touched $92.18 per barrel, although both have retraced slightly as the European session begins.

AUD/USD Moves with RBA Hawkish Stance

AUD/USD has been an active player recently, driven by the Reserve Bank of Australia’s (RBA) hawkish stance. RBA Governor Michele Bullock’s remarks at a summit further reinforced this outlook, with interest rate markets now pricing in a 25 basis point hike by the end of the third quarter in 2024.

Positive Chinese GDP Data

China’s GDP growth in the third quarter, at 1.3% quarter-on-quarter, exceeded expectations, providing a boost to the Aussie Dollar. Additionally, Chinese President Xi Jinping’s comments at the Belt and Road forum signaled a commitment to the initiative, accompanied by promises to ease restrictions on foreign manufacturing investment.

China’s Property Sector Concerns

Despite positive economic data, China’s property sector continues to be a cause for concern. Country Garden bondholders are still awaiting their latest coupon payments, adding a layer of uncertainty for investors.

Mixed Day for APAC Equities

Asian-Pacific equities had a mixed day, with most indices mirroring Wall Street’s lackluster performance. China’s CSI 300 index, despite positive GDP figures, traded over 0.5% lower.

Bank of Japan’s Intervention

The Bank of Japan intervened in the bond market to address rising Japanese Government Bond (JGB) yields. The 10-year JGB breached 0.81% for the first time since 2013, and USD/JPY maintained its levels, trading above 149.50.

US Dollar Upcoming Market Data

As we look ahead, markets anticipate UK and Euro-wide inflation data, along with US housing starts and building permits figures for September.

EUR/USD Technical Analysis

EUR/USD, after a modest overnight rise, is testing the upper boundary of a descending trend channel. A break above this trend line could signal a potential reversal from the overall bearish trend.

Key resistance levels to watch include the breakpoint near 1.0620, coinciding with the 34-day simple moving average (SMA). Another level of resistance is at the prior peak around 1.0673, in proximity to the 55-day SMA.

Above these levels, the 100- and 200-day SMAs may pose as further resistance near the breakpoint at 1.0830. On the downside, potential support levels lie at the breakpoints and lows of early 2023, notably at 1.0480 and 1.0440.