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US Dollar Continues to Rise

After a very choppy week, the US currency emerged as a refuge of strength across a wide range of currencies. The long end of the interest rates market settled down slightly and commodities fell from their recent highs. Volatility has fallen across asset classes and markets in general seem to be relatively calm. All these signs point to a steady US economic growth outlook with inflation under control. The addition of stimulus money into the pocketbooks of consumers should underpin this view for much of 2021.

Of course, we have seen this perspective change quickly and dramatically in the last 2 months. US 10 year yield is still the canary in the coal mine. Should it resume its move higher, things could change rather quickly. The Fed delivered more and more dovish commentary the past 2 weeks and they clearly remain ready to keep the punch bowl full for several years to come. At the moment, this has kept longer dated yields at bay, but this can backfire in the long run as inflation fears could spark a sell-off in bonds (a spike in longer term rates).

US 10 Yr Yield

We rallied above 1.75% briefly last week, before falling back to 1.60% and levelling off around 1.65% at the moment. The up-trend is still in place and the big question that remains is how far and how fast can this go?

EUR/USD still heavy

The failure above 1.2200 is rather significant and the selling continues into the end of Q1. The chart to the left shows no support until 1.1600 and if that breaks it could get ugly. There are some fundamentals at play here as well. Namely, a much slower and muddled vaccine rollout that clouds the re-opening trade. By contrast, the US has exceeded its goals and has raised the bar. The disruption in Turkey hits a bit closer to home on the continent and the balance sheets of European investors.

GBP/USD caught a small bid

After largely mirroring the EUR for the past few months, Cable has managed to rally back to nearly 1.3800. It is possible that a rosier vaccination rollout has something to do with it, but that may be overly simplistic. A long term uptrend is still in play and support appears strong.

Meanwhile in Canada

We tested below 1.2400 briefly last week but recovered nicely to 1.2600. WTI (Oil) cracked off its recent highs which probably took the wind out of the sails for CAD. Keep an eye on how this plays out, any spike in oil could cause another quick drop in USCAD.

Also, let’s not forget that a 1 year downtrend is still firmly in place.

USD/JPY Rally Continues

This has been a very impressive year for USDJPY. Risk on is still safe and the fundamentals for a weaker JPY keep growing. Talk of a boost in the fiscal side of stimulus can’t be good for the JPY this year. A near term target of 112.00 seems reasonable and beyond that could materialize easily.

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