US dollar, USD/JPY, USD/CNH gain as Wall Street, Treasury yields rise

Tuesday’s market recap – US dollar, Japanese yen, Wall Street, Treasury yields

The US dollar continued its ascent over the past 24 hours, especially against the anti-risk Japanese yen. Global market sentiment generally ended on an upbeat. Looking at the Tuesday Wall Street trading session, futures tracking the Nasdaq 100, S&P 500 and Dow Jones gained 2.23%, 1.65% and 1.54% respectively.

Traders seem to remain confident that the world’s largest economy can withstand a Federal Reserve that is tackling the highest inflation in 40 years. Bank of Atlanta Fed President Raphael Bostic noted that the economy is in a ‘better place to stand on its own’.

In fact, the closely-watched ten-year & two-year yield curve has been further steepening away from inversion territory. Treasury yields rallied across the maturity spectrum. The two-year and ten-year rates climbed 5.87% and 2.91% respectively.

Key market performance over past 24 hours – 15-minute chart

Given a still-dovish Bank of Japan, widening yield differentials and rosy risk appetite, these conditions did not bode well for JPY. Over the past 24 hours, Japan’s Finance Minister Shunichi Suzuki noted that they will continue to monitor foreign exchange markets ‘with a sense of vigilance’, adding that ‘sudden moves are not desirable’. However, he also reiterated that forex rates are decided by the market.

USD/JPY technical analysis

From a technical standpoint, USD/JPY broke above the 61.8% Fibonacci extension at 128.468, exposing the 78.6% level at 130.421. A rising trendline from the beginning of March continues to aim the pair higher towards the 2002 peak at 135.16. In the event of a breakout under rising support, keep a close eye on the 20-day Simple Moving Average (SMA).

USD/JPY daily chart

Wednesday’s Asia-Pacific trading session – PBOC rate cut?

Following the closing bell, Netflix Inc. reported first-quarter earnings that woefully missed expectations. The stock tumbled over 20% in after-hours trade, extending the drop from last year’s peak to beyond 60%. This is setting a sour tone for growth-oriented shares heading into Wednesday’s Asia-Pacific trading session, undermining some of the upside progress seen over the past 24 hours.

All eyes are on the People’s Bank of China as it sets one-year and five-year loan prime rates for April. The former is expected to fall to 3.65% from 3.70%, with the latter declining to 4.55% from 4.60%. A stringent Covid-zero strategy is weighing on the economy, with manufacturing PMIs recently shrinking in March. The US dollar could be building up for a turning point against the Chinese yuan.

USD/CNH technical analysis

The US dollar broke above a year-long falling trendline against the Chinese yuan, opening the door for USD/CNH to reverse the two-year downtrend. Prices also cleared the 6.3941 – 6.4107 resistance zone, exposing the September high at 6.4880. A bullish Golden Cross is in play between the 20- and 50-day SMAs.

USD/CNH daily chart

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