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The dollar is gaining ground as US bond yields rise early on Wednesday after falling on Tuesday. Tension is mounting ahead of US inflation figures and a critical Treasury auction. Bitcoin holds onto gains, oil consolidates lower and the BOC is eyed.
Yields: Returns on the benchmark ten-year yields remain the critical driver for markets. Their fall on Tuesday fueled a rally in Wall Street and pushed the dollar down, while they are edging up on Wednesday, causing the reverse to happen. All eyes are now on an auction of ten-year bonds due in the American session.
US 10-Year Treasury Auction: Interest rates return to center stage
Ahead of that offering, US Consumer Price Index figures for February are set to show a minor increase in price pressures. Federal Reserve officials dismissed any inflation as a result of base effects and transitory. A sharp rise would force a rate hike and boost the dollar.
US CPI February Preview: A perfect storm in the making?
Stimulus: One of the critical upside drivers or inflation expectations and yields comes from President Joe Biden’s $1.9 coronavirus relief package. The Senate’s modified version of the bill is set for a vote in the House, en route to signing it into law. Stimulus checks and aid to states are due out immediately afterward.
The Bank of Canada is set to leave interest rates unchanged and may also comment on the increase in returns on Canadian debt amid better growth prospects. WTI Oil is trading around $63, off the highs seen earlier in the week and allowing USD/CAD to bounce above 1.2670.
EUR/USD has slipped below 1.19 amid fresh dollar strength and EU regulators are set to approve Johnson & Johnson’s single-shot COVID-19 vaccine.
Gold is changing hands above $1,710, holding onto its recovery despite the fresh rise in US Treasury yields.
Bitcoin is trading around $54,000, below the highs near $56,000 but still boasting a market capitalization of around $1 trillion. Ethereum is above $1,800 and XRP below $0.47.
USD/CHF has charted a key day reversal after approaching double Fibonacci resistance at 0.9324/28. Thus, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, expects a correction with the initial support seen at 0.9230.
“USD/CHF has failed to maintain a break of the 0.9324/28 38.2% retracement of the move down from the 2019 peak and the 50% retracement of the move down from the 2020 peak. In fact yesterday’s price action was a key day reversal and coupled with a 13 count, we would allow for a correction lower.”
“We suspect that yesterday’s high at 0.9375 is an interim high. Above here lies the 0.9439 TD resistance and the 50% retracement at 0.9500.”
“Dips will find initial support at 0.9230/0.9123, the 200-day ma ahead of 0.9045, the 4th February high.”
EUR/USD did not manage to get above the resistance at 1.1900 and is testing the support at 1.1880.
EUR/USD failed to settle above the resistance level at 1.1900 and is trying to settle back below the support at 1.1880. RSI has moved back into the moderate territory so there is plenty of room to gain additional downside momentum in case the right catalysts emerge.
If EUR/USD settles below the support at 1.1880, it will head towards the next support level at 1.1850. A successful test of this support level will open the way to the test of the next support which is located near the recent lows at 1.1830. In case EUR/USD declines below 1.1830, it will head towards the next support level at 1.1800.
On the upside, EUR/USD must stay above 1.1880 to have a chance to develop upside momentum in the near term. The next resistance level is located at 1.1900. This level has already been tested several times in recent trading sessions and proved its strength. If EUR/USD settles above 1.1900, it will head towards the resistance at 1.1925.
Gold staged a solid bounce from multi-month lows and rallied over 2% on Tuesday. XAU/USD remains at the mercy of US bond yields while US Consumer Price Index figures, which are set to show a minor increase in price pressures, are eyed on Wednesday, FXStreet’s Haresh Menghani briefs.
“Given that gold is considered as a hedge against inflation, Wednesday’s release of the US CPI report will now play a key role in influencing the near-term trajectory. In the meantime, the broader market risk sentiment, the USD price dynamics and the US bond yields will be looked upon for some meaningful trading opportunities.”
“Any subsequent positive move might still be seen as a selling opportunity near the $1740 region. This, in turn, should cap the upside for the commodity near the $1760-65 strong horizontal support breakpoint. That said, a sustained move beyond will suggests that the metal has bottomed out and set the stage for some meaningful recovery in the near-term.”
“The $1700 mark now seems to protect the immediate downside. This is followed by support near the $1685-83 region, which if broken will be seen as a fresh trigger for bearish traders. XAU/USD might then accelerate the fall towards June 2020 swing lows, around the $1670 level before eventually dropping to the next relevant support near the $1650 area.”
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