USD Makes A Comeback After Yesterday’s Retreat

Yesterday the USD and other safe havens such as Gold and the CHF retreated lower, as risk sentiment improved after there was no escalation of the Middle East conflict. Today though, the sentiment has reversed and the USD is showing strong resilience. Although it is little changed against the AUD and the NZD, while the CAD is following crude Oil down, sending USD/CAD higher.

The Euro and GBP/USD are around 100 pips lower, with the latter currently trading at a session low, below 1.22. With US bond yields turning higher today as well, the USD is currently stronger overall. US 2-year rates are up 2.5 basis points to 5.10%, leading the advance on the short end as a concession is built-in ahead of today’s $51 billion sale.

Further out, the market is pricing in 71 bps of cuts by the end of the next year, and the direction that it takes will have a direct impact on 2s. The concerning aspect, however, is the supply of 5-year and 7-year Treasuries that are expected for auction this week, as well as the refund notification made on the morning of the FOMC decision on Wednesday.

Right now, sellers have total control of the US Treasury market, which has caused rates to spike higher throughout the curve. US bonds with maturities ranging from one month to thirty years, with the exception of the US five- and ten-year bonds, have a “five handle” as investors remain unsure and allow the sell-off to continue. Gold has retreated to $1,96o lows, but has stopped and is giving signs of a bullish reversal now. So, we decided to open another buy Gold signal a while ago.

Gold XAU Live Chart

GOLD