Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Has the dollar index achieved lift-off?
Michael O’Neill
FX Trader, Loonieviews.net
Summary: The USD rally may appear to have paused over the past few sessions, but the dollar remains the FX major to beat.
The US dollar index is suggesting that a much higher greenback is on the cards. The index traded narrowly between March 26 and April 23, bouncing inside a 96.30-97.20 range. The top then broke on April 23 and prices have been consolidating in a 97.50-98.05 range ever since. The uptrend line from the middle of March is intact while prices are above 96.90. In the longer term, a decisive break above 97.87 (the 61.8% Fibonacci retracement level of the December 2017 top and the February 2018 bottom) targets the 76.4% Fibonacci level of 100.12.
The rising USDX doesn’t bode well for the single currency. The intraday and short term EURUSD technicals are bearish with a break of 1.1140 pointing to 1.1110. Fibonacci retracement suggests that the move below the 61.8% Q1'18-Q1'19 range opens the door to 1.0850, the 76.4% Fibonacci level. Dovish European Central Bank monetary policy, the spate of weak Eurozone economic data and EU/US interest rate differentials continue to support bearish EURUSD sentiment.
US personal Income rose 0.1%, and personal expenditures rose 0.9% in March. The income rise was disappointing, but the partial government shutdown may have impacted the results. The Bureau of Economic Analysis stated that “due to the recent partial Dederal government shutdown, this report combines estimates for February and March 2019. Personal Income is updated for January and February, and new estimates are available for March.”
FX traders ignored the data, and the US dollar managed to scrape out minor gains against the G10 major currencies since the New York open.
Wall Street opened flat, but the outlook is positive thanks to Treasury Secretary Mnuchin’s comments about the China/US trade talks and the prospect of more dovish comments from the Federal Open Market Committee on Wednesday. Traders, meanwhile, appear content to wait for Alphabet’s (GOOG: Nasdaq) results after the close.
The rising USDX doesn’t bode well for the single currency. The intraday and short term EURUSD technicals are bearish with a break of 1.1140 pointing to 1.1110. Fibonacci retracement suggests that the move below the 61.8% Q1'18-Q1'19 range opens the door to 1.0850, the 76.4% Fibonacci level. Dovish European Central Bank monetary policy, the spate of weak Eurozone economic data and EU/US interest rate differentials continue to support bearish EURUSD sentiment.
US personal Income rose 0.1%, and personal expenditures rose 0.9% in March. The income rise was disappointing, but the partial government shutdown may have impacted the results. The Bureau of Economic Analysis stated that “due to the recent partial Dederal government shutdown, this report combines estimates for February and March 2019. Personal Income is updated for January and February, and new estimates are available for March.”
FX traders ignored the data, and the US dollar managed to scrape out minor gains against the G10 major currencies since the New York open.
Wall Street opened flat, but the outlook is positive thanks to Treasury Secretary Mnuchin’s comments about the China/US trade talks and the prospect of more dovish comments from the Federal Open Market Committee on Wednesday. Traders, meanwhile, appear content to wait for Alphabet’s (GOOG: Nasdaq) results after the close.
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