US Dollar Charges Higher As Treasury Yields Surge And Crude Oil Soars. Where To Next?

The US Dollar appears to have shrugged off recent weakness with Treasury yields continuing higher, underpinning the greenback. The 10-year note hit 1.89% while the 2-year traded at 1.076%, levels not seen since the pandemic began.

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The increased expectations of higher rates across the curve have seen equities tank. The Nasdaq was down 2.6% in the cash session overnight and the futures contract has continued lower after the close. The S&P 500 and the Dow are lower but to a lesser extent.

APAC equites have also been hit, with the Japanese indices taking the brunt of the downturn, falling over 2% today.

Hong Kong shares were the best performing, close to flat on the day after the PBOC pledged more policy easing is on the cards after Monday’s rate cuts. Iron ore and other ferrous metals moved higher on the news.

The uptick in US rates is occurring at a time when inflation expectations are steady, driving up real yields. This has seen gold drift lower this week and it is currently trading near USD 1,811 an ounce, just above the week’s low of 1,806.

Conversely, oil continues to appreciate, making an 8-year high today. Crude was already bubbling higher on supply concerns emanating from the Houthi attack on the UAE yesterday.

Then Goldman released an upgrade to their outlook for black gold. They are predicting USD 105 a barrel in 2023 citing limited spare capacity.

Further adding to the squeeze, overnight there has been an explosion of a pipeline connecting the northern Iraqi oil fields to the Turkish port of Ceyhan. It had been hit previously in 2012.

It is estimated that the pipeline delivers more than 450k barrels a day, roughly 10% of Iraq’s output. Iraq is the second largest producer in OPEC+.

It’s being reported that the fire has been extinguished but it’s unclear when it will come back online.

The WTI futures contract has traded as high as USD 86.41 a barrel in Asian trade. The Canadian Dollar has been supported today but the Norwegian Krone is yet see a reaction at the time of going to print.

The US Dollar index (DXY) rose 0.5% in the North American session, reflecting appreciation against EURGBPCHF, SEK, flat against JPY and weaker to CAD. These currencies make up the basket in the DXY index.

Looking ahead, The US will see a series of housing data released as well as the Canadian CPI numbers for December.

 

 

US Dollar Index (DXY) Technical Analysis

The DXY index broke key support at 95.518 last week before rallying back through it this week. This could now be pivot point support.

Support could also be at the previous lows and pivot points of 94.629, 94.561, 93.875 and 93.278.

Above the market, resistance might be at the 61.8% Fibonacci retracement level of the move down 96.938 to 94.629, currently at 95.06.

The previous highs at 96.462, 96.689 and 96.938 may also offer resistance.

US Dollar Charges Higher as Treasury Yields Surge and Crude Oil Soars. Where to Next?

Chart created in TradingView

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