US yields and China trade rethink lift the dollar

The G-10 rundown

USD – the greenback rally is back in the saddle and could at least extend back to the recent highs if that 10-year benchmark finally makes a statement and punches through above 3.05%. Would expect the rally to be steepest versus EMs, which tend to dislike USD strength and higher US long yields.

EUR – The German GDP estimate this morning came in a bit weaker than expected as EU data can’t catch a break. With the reversal at 1.2000 on the EURUSD chart, that level serves as the resistance for a test of the lows again.

JPY – USDJPY is back looking at 110.00 as risk appetite in DMs has held in there as US yields are back higher – from a yield perspective, JPY vulnerable, but if risk appetite eventually wilts, the JPY could begin to firm again in the crosses.

GBP – UK data today in focus and sterling deserves relief in the crosses if there are no negative surprises as UK rates have gone sideways here. Brexit talks see little progress, says EU Brexit negotiator Michel Barnier.

CHF – EURCHF back a bit lower as the EURUSD rally was also reversed yesterday and USDCHF surprisingly quick to consolidate and bump back above parity. Higher yields make USDCHF an attractive carry trade.

AUD – Aussie rates rebounded a bit after a recent steep slide as the Reserve Bank of Australia minutes suggested that the next rate move is more likely up than down, though there was a bit of concern expressed on tighter lending rules (our chief concern for the growth outlook) on household spending and said that spare capacity in the jobs market will remain “for some time”. Next stop is Thursday’s Australia April jobs report.

CAD– strong oil prices are keeping CAD somewhat bid in the crosses, though it can’t match the USD strength and 1.2700-50 is now the support zone of note ahead of the key data for Canada this week with Friday’s inflation and retail sales reports.

NZD – AUDNZD is making further progress as the pair has rushed higher through the 1.0800-50 pivot zone, which is now the support zone for a go at 1.1000 and possibly even 1.1300 eventually.

SEK – EURSEK is consolidating after the steep retracement and as it is hard to find SEK attractive in a rising yield environment without more notable catalysts from the Riksbank.

NOK – EURNOK is disappointing by not resuming the sell-off even as oil prices are at new highs for the cycle – if the pair slips back well above 9.60, it will be back to the drawing board.

Upcoming Economic Calendar Highlights (all times GMT)

   • 0800 – Poland Q1 GDP
   • 0830 – UK Mar. Average Weekly Earnings
   • 0830 – UK Mar. ILO Unemployment Rate
   • 0830 – UK Apr. Jobless Claims Change
   • 0900 – Eurozone Q1 GDP Estimate
   • 0900 – Germany May ZEW Survey
   • 1200 – US Fed’s Kaplan (non-Voter) to speak
   • 1230 – US Apr. Retail Sales,
   • 1230 – US May Empire Manufacturing
   • 1400 – US May NAHB Housing Market Indicator
   • 1700 – US Fed’s Williams (Voter) to speak
   • 2350 – Japan Q1 GDP Estimate