EUR/USD, GBP/USD slide as rising US yields take control
- Treasury moves, not Nvidia or geopolitical headlines, drive EUR/USD and GBP/USD price action
- Both pairs whipsawed as yields rose, with technical signals offering mixed clues.
- Momentum favours buying dips, but US yields remain the key driver for now
Overview
The headlines may have been dominated by Nvidia’s pre-earnings share price drama and speculation over missile origins in Ukraine, but for forex traders, the real story on Wednesday was at the long end of the Treasury curve. Moves in US yields likely played a pivotal role in driving EUR/USD and GBP/USD price action.
What’s behind the rebound in US bond yields?
Some attributed the rise in yields to a soft 20-year US Treasury auction, but seasoned rates traders know this tenor is widely disliked due to its limited portfolio suitability, making it an unreliable indicator. Others pointed to the hot UK inflation data, echoing Canada’s report a day earlier. While notable, it’s unusual for US Treasury markets to react meaningfully to foreign data. Instead, the reversal in US 10-year Treasury note futures offers a clearer explanation.
Benchmark bond futures rejected, again!
Source: Trading View
After briefly breaching 113’00 on Tuesday, prices failed once again at known downtrend resistance, likely triggering a selloff that drove Treasury prices lower and yields higher. This marked the fifth consecutive failure at the trendline. While the sustainability of the selloff is questionable given a lack of major economic catalysts and momentum signals turning bullish, the rise in yields likely weighed on EUR/USD and GBP/USD.
The strong negative correlation over the past fortnight between US benchmark bond yields and both pairs remains intact, as seen in the bottom pane in the charts below.
EUR/USD: buying dips still preferred
Source: Trading View
Wednesday’s yield-driven reversal saw EUR/USD retreat sharply, continuing its whipsawing between 1.0600 and 1.0517. The latest bearish evening star pattern suggests further downside risks, but this follows a bullish morning star pattern the day before, adding to the confusion. RSI divergence from price hints at potential upside, supporting a buy-the-dip approach. Longs could be considered near 1.0517 with stops below 1.0500, targeting 1.0600 initially and 1.0668 beyond that.
Hot inflation not enough to boost GBP/USD
Source: Trading View
GBP/USD also struggled, with higher US yields overwhelming the temporary boost from UK inflation data. Unlike EUR/USD, momentum indicators like RSI and MACD remain bearish, limiting upside appeal. The 1.2613 level offers a possible entry point for longs, with tight stops below and targets at 1.2720 and the 200-day moving average near 1.2803.
While upcoming UK retail sales and flash PMIs may provide temporary volatility, the lack of major US economic data until late next week suggests broader moves will continue to hinge on US yield dynamics.
-- Written by David Scutt
Follow David on Twitter @scutty
How to trade with City Index
You can trade with City Index by following these four easy steps:
-
Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the market you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.
ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.
City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.
The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.
The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.
The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.
StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.
This advertisement has not been reviewed by the Monetary Authority of Singapore.
© City Index 2024