Follow-Through Dollar Buying After Yesterday's Reversal Tests The Bears

The dollar rose a little above JPY106.20 in Tokyo, its highest level since last September. Rising US rates are seen as the main driver. Initial support is near JPY105.80. The 200-day moving average is around JPY105.50, where a $405 mln option expires today. After trading on both sides of Monday's range yesterday, the Australian dollar settled just inside that range. While avoiding a technical key reversal, there was follow-through selling today that took it to about $0.7730 after briefly punching above $0.7800 yesterday. Working through the nearly A$760 mln option at $0.7750 that expires today, maybe lending it support. A break of $0.7720 is needed to signal more than a flattish consolidation. Australia reports January employment figures first thing tomorrow.  China's markets re-open tomorrow. After testing the CNH6.40 area on Monday and Tuesday, the greenback has bounced back and is near CNH6.4420 now. It was a little below CNH6.43 when the holiday started.  


The UK's January consumer prices were a touch firmer than expected. CPIH, the preferred measure, which includes owner-occupied housing costs, ticked up to 0.9% from 0.8% year-over-year. The headline CPI eased by 0.2% in the month, half the decline economists expected, lifting the year-over-year rate to 0.7% from 0.6%. The core rate was unchanged at 1.4%. Producer prices were also slightly firmer than expected, with output prices rising by 0.4% on the month and input prices rising by 0.7%. There is not much to take away from these figures. Price pressures remain modest, and the greater challenge is aggregate demand. January retail sales are due at the end of the week, and a sharp decline is expected.  

While the rise in US yields is the stuff headline are made of, the magnitude of the increase in global yields may not be appreciated. Consider that over the past month, the 10-year US Treasury yield has risen by about 20 bp. The 10-year Gilt yield is up more than 30 bp. Canada's yield has increased by nearly 32 bp. Sweden and the Netherlands have seen their benchmark yields rise 22-23 bp. German and French yields are up 17-18 bp. Australia's 10-year yield has risen by 33 bp over the past month, while New Zealand's yield has surged by 50 bp. Italy is the exception. Its benchmark yield is off nearly six basis points. Germany sold 30-year bonds today, and the yield was positive for the first time since last March. 

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Read more by Marc on his site Marc to Market.

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