US Dollar Trading Outlook

The US dollar made a comeback late last week, rising against all G10 currencies and lending support was a steep rise in US Treasury yields. However, a look at this 23 April US Dollar Trading Outlook shows that the week is full of risks for the greenback and equities. What are they?

23 April, ADS Securities – Treasury yields post a 4-year high edging towards the 3% mark taking the Dollar along for the ride!  The US currency gained versus all of its peers last week and at the beginning of this one, the bullish momentum remains in place.

23 April US Dollar Trading Outlook

The key question though is what happens when the US 10-year yield reaches the 3% level and what this means for currencies and equities. In theory, the Dollar should continue to gain and equities should come under pressure but financial markets are never that straight-forward so we need to be cautious as we decipher the combination of catalysts in play.

During the first 24 hours of trading traders’ focus will remain on the Dollar and more specifically on the Euro/Dollar pair in light of the Eurozone and US flash PMI reports for April. The manufacturing and services’ data will be important in dictating the price action for both currencies early in the week. As such and with the figures expected to print softer in the Euro area and consistently positive in the US the bearish bias in the Eurodollar will likely keep the currency below the 1.23 mark.

ECB Interest Rate Decision

The Euro will also come front and center later in the week as on Thursday the ECB will hold their monthly monetary policy meeting and the spotlight will fall on what Mario Draghi will say during the press conference that will follow the decision.

The market consensus suggests that the head of the ECB will stay true on this cautious tone and avoid signaling any interest rates’ changes at this stage. Should this be the case, then Draghi’s rhetoric will keep the shared currency on a bearish trajectory with the 1.22 floor coming into focus.

The week is full of risks for the greenback and equities

Refocusing on the Dollar, we think it makes sense at the beginning of the week to highlight a possible alternative scenario for the US currency. Even though recent fundamentals are supportive of the greenback’s rally a closer look at this week’s pending reports from the US suggests a possible correction.

Even though today’s flash PMI figures are expected to print positive, starting tomorrow a host of US data is likely to come in softer: the US Consumer Confidence report, the Durable Goods Orders and the US GDP data are expected to print lower.

As such, traders need to be mindful of this scenario as it comes in contrast to the current bullish bias and the outcome of this divergence in catalysts cannot be easily predicted. Given the recent rally in the Dollar, a correction might indeed be the next healthy step and this could offer short-term opportunities in the Euro, Pound and Yen crosses and Gold. The respective trigger levels are: 1.23 for the Euro, 1.41 for Sterling, 107.50 for Yen and $1,340 for Gold.

Asia Equities Markets

Equity markets in Asia are trading lower at the beginning of the week as yields edge towards the 3% mark but the European and US equity futures point higher this morning. Geopolitical risks continue to ease with the US making progress in improving their relations with China and North Korea and equity traders are hinging on this positive news to fuel their optimism. 

The earnings’ season is also underway and strong results should underpin stocks in the short-term but as yields continue their rally higher traders should not drop their guard at this time. Even a small deterioration in sentiment could trigger a sell-off for global equities as yields threaten the upside potential.

ADS Securities Risk Disclaimer

This article was provided by analysts of ADS Securities.

Trading foreign exchange, foreign exchange options, foreign exchange forwards, contracts for difference, bullion and other over-the-counter products carries a high level of risk. All opinions, news, analysis, prices or other information contained in this communication are provided as general market commentary. It does not constitute investment advice. Nor a solicitation or recommendation for you to buy or sell any over-the-counter product or another financial instrument.

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