Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
US yields extend climb as bond bears regain control
US Treasury yields pushed higher as markets resumed their bear-steepening trend ahead of crucial CPI data.
The USD index gained 0.3% as the euro slipped below the key 1.02 level before staging a modest recovery.
The euro was the main underperformer, with EUR/USD falling sharply below 1.02 before consolidating around 1.0260 amid dovish comments from ECB Chief Economist Lane.
The Canadian dollar gained strength after positive economic data, pushing USD/CAD down 0.3%.
In Asia, USD/CNH continued to strengthen despite net selling pressure, trading below 7.35 ahead of today’s PBOC and SAFE briefing, while USD/SGD remained largely range-bound.
US core inflation test ahead of key resistance
This Thursday, US Core CPI will be released.
From 0.308% in November to 0.271% m-o-m in December, core CPI inflation most likely eased somewhat.
According to our prediction, the Fed may be dealing with last-mile inflation concerns as this would be the sixth consecutive month that the figure has been over 0.25%.
According to incoming data, the cost of clothing and new cars increased in December, which raised the price of all basic commodities.
The pricing of core items appeared to be supported by strong consumer spending. The USD index has hit 26-month highs, in line with our expectations months ago on the likelihood of the dollar strength to continue.
Eurozone industrial production shows signs of weakness
This Wednesday, industrial production in the Euro area will be released.
In light of the flat figure from the previous month, we are thus anticipating a 0.7% m-o-m print for the euro area.
Following strong payrolls data and the rejection of significant short-term resistance near 1.045, EUR/USD returns to the 1.0202 September 2022 61.8% retrace.
Our focus would shift to the 1.009 Nov 2022 pattern breakdown if there was a break lower.
Aussie rebounded but still under pressure
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 13 – 18 January
All times AEDT
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
