US Open Note – Bond yields shine at fresh highs as US futures struggle; euro bulls gear up

Christina Parthenidou, XM Investment Research Desk

Bond yields shrug of Powell’s comments; US future point to the downside

Nothing could stop bond yields from rising on Thursday, not even the Fed chief Powell, who once again told lawmakers of the House of Representatives on Wednesday that a persistent rapid inflation break above 2.0% will not be the case for the next three years. While his remarks assured investors, who were front-running the Fed, that the current ultra-lose monetary policy is here to stay, the US 10-year Treasury yield continued its bull run towards a fresh one-year high of 1.4680.

A similar episode played out in the European bond markets, despite ECB board member Isabel Schnabel saying that the central bank would mitigate any enormous tightening in financial conditions. Perhaps the yield climb is driven by the economic optimism underpinned by the vaccine rollout and the reopening plans, though whether the Fed’s message was convincing enough remains to be seen.

Nevertheless, Powell’s reassurances breathed some life back into stocks, with commodity shares leading the gains in European stock indices, whereas US futures were slightly on the downside after recouping some losses yesterday.

In other news, the robust upturn in the GameStop stock on Wednesday reminded investors over the short squeeze triggered by Reddit’s WallStreetbets group in January, therefore some caution should be warranted for similar incidences during the US session.

Euro bulls pick up steam as dollar struggles

In the FX space, the dollar index was on the back foot against major rivals besides the battered Japanese yen, which was at a bigger disadvantage, allowing dollar/yen to rebound above the 106.00 mark and closer to February’s peak.

Stronger-than-expected US durable goods orders and a slight drop in weekly jobless claims did not cause any immediate reaction.

The sell-off in traditional safe havens helped euro bulls to hold the reins today and become the best performers of the day. Euro/dollar has finally breached the wall around the 50-day simple moving average and is set to meet the key resistance of 1.2272, while euro/yen rose  at a faster pace to a 27-month high of 129.86.

Even the thriving pound could not offset the strength in the euro, letting euro/pound to rebound above the crucial 0.8600 number. Pound/dollar remained muted around the 1.4140 handle following its pullback from the 1.4235 peak on Wednesday. The progress in pound/yen may gather interest in the coming sessions as the pair is approaching the resistance line from March after crossing above 150.00.

The Eurozone’s consumer confidence index for February came in line with expectations at -14.8, causing little disruption to the euro.

Commodity currencies strengthen uptrend

Meanwhile, the impressive rally in commodity-dependent currencies continued for another day, though at a softer pace, thanks to the risk-on appetite, with aussie and kiwi registering new highs. The loonie headed for another green week versus its US neighbor, while we also cannot ignore its progress against the yen.

The US calendar will feature several Fed speeches during the rest of the day. Japanese CPI inflation figures for February and retail sales for January may gather some interest during the early Asian trading hours.