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The dollar held four days of gains against major peers on Tuesday as the prospect of massive fiscal stimulus pushed U.S. yields higher.
President-elect Joe Biden, who takes office on Jan. 20 with his Democratic party in control of both Houses, has promised “trillions” in extra pandemic-relief spending.
The dollar index has rebounded from a nearly three-year low reached last week as the benchmark 10-year U.S.
Treasury yield topped 1% for the first time since March and rose as high as 1.148% overnight.
Many analysts expect the U.S. currency to resume the decline that saw the dollar index lose close to 7% in 2020 as expanded stimulus and vaccine rollouts brighten the global economic outlook. Investors tend to buy the dollar when they are looking for safer investments.
“It’s complicated because higher U.S. yields are giving the dollar a bounce, but stimulus could support U.S. equities, and the dollar would remain weak,” said Osamu Takashima, head of G10 FX strategy at Citigroup Global Markets Japan in Tokyo.
“In the medium-term, we remain bearish on the dollar. Dollar assets look expensive.”
Speculators in the FX market are extremely bearish on the dollar, U.S. Commodity Futures Trading Commission data released on Friday showed.
The greenback added 0.1% to 104.305 yen, after rising to a one-month high of 104.40 on Monday.
The euro was largely steady at $1.21425 after slipping to $1.21320 in the previous session for the first time since Dec. 21.
The USD/JPY pair has reached its 10-month downtrend, which is the level to beat in order to open the path towards the 200-day moving average at 105.91, Karen Jones, Team Head FICC Technical Analysis Research at Commerzbank, reports.
“USD/JPY’s correction higher has now reached the 10-month downtrend at 104.38. This continues to act as the barrier to the 200-day ma at 105.91.”
“Given last weeks key week reversal we feel that upside risk is growing and would allow for the possibility of a trend break.”
Heading into Tuesday, gold has snapped the four-day losing streak, posting small gains to trade once again above $1850. XAU/USD looks north but upside seems limited amid rising Treasury yields, FXStreet’s Dhwani Mehta reports.
“The bulls are probing the bearish 50-hourly moving average (HMA) at $1858. The next relevant upside barrier awaits at $1890, the downward-sloping 100-HMA.”
“If the bulls face rejection at 50-HMA, a pullback towards the pattern resistance now support around $1852 cannot be ruled out. Further south, the horizontal 21-HMA at $1847 could offer some support, below which the pattern support at $1842 would come into play. Meanwhile, Monday’s low of $1817 will be the level to beat for the bears.”
CME Group’s flash data for crude oil futures markets noted open interest and volume went down by around 7.5K contracts and by nearly 239K contracts, respectively, on Monday.
WTI: Further gains on the table
Monday’s small pullback in prices of the WTI was amidst shrinking open interest and volume, removing sustainability from the drop and leaving the idea of further upside well on the cards for the time being. Against this, the next target of note is located at the February 2020 high at $54.45 per barrel.
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