The USD fires up as rate differentials impact

Notably the US500 into the 200-day, while the NAS100 and US30 both printed a lower high and appear to be consolidating – lots of chop, which can be harder to trade as there is no conviction from bulls or bears.

We’ve seen good flow in NAS100 and US30 from clients, and we’re left with a clear bias to be long, most notably in NAS100 which is the trader favourite given it’s the high beta play. Apple hitting the market with numbers after-market, and they seem to have gone down well with the stock up 3.8% in the post-market – lets see if that can support our NAS100 market through Asia.

We’ve seen good interest to buy EURUSD and few trust this move seen in the USD. My preference has been the follow the flow, where long USD positions were my view yesterday here and this seems to be working well for now with the USDX breaking out above its former range high and the 97-handle. One for the momentum traders for sure, and I’ll stick with a long bias for now. EURUSD has driven the USDX move, where we’ve seen this breaking the Nov lows and eyes the 1.1100 level – clients look for the bounce though, as they do in AUDUSD, which had the bigger percentage move.

Daily of the AUDUSD

(Source: Tradingview - Past performance is not indicative of future performance.)

The interesting factor is US long-end bond yields have fallen fairly hard, while short-term bonds have been sold and therefore yields are higher – the USD seems to be looking at short-term rates pricing, where we see 4.8 hikes priced for end-2022 in fed funds future. It seems they are completely ignoring what’s happening in longer-term bonds and much has been made of the flattening of the yield curve and talk of ‘inverted curves are all the rage…while a flatter yield curve is a function of rising rate hike expectations, the failure of long-end rates to move higher is not a healthy backdrop to be hiking rates in.

US yield curve – 30yr Treasury minus 5yr Treasury

(Source: Tradingview - Past performance is not indicative of future performance.)

We’re also seeing a strong move lower in XAUUSD, thanks to the stronger USD, with price smashing through the short-term rising trend and into a low of 1791 – 1782 is the next support level to watch and a break there takes gold into 1760, where I’d expect some of the buyers to defend. Clients are long, with some 75% of open positions now held for a move higher, which fits into a weaker USD view - although this is not one size fits all and the net position is a blend of different strategies that could be holding for a scalp or into more position type timeframe.

Watching for Asia to fire up today – can the goodwill last into the weekend or will traders fade rallies when cash market trade gets underway?