Oct 19 (Reuters) – In a counterintuitive move that may signal trouble for dollar longs, EUR/USD rallied above the 10- and 21-DMAs Thursday despite U.S. Treasury yields US10YT=RRUS2YT=RR striking fresh up-trend highs and the U.S. yield advantage increasing.
U.S. 2-year yields struck a 13-year high while 10-year yields hit a 12-year peak and neared the psychological 5.0% level.
The dollar’s failure to rally as yields hit those peaks could be a sign that investors may be worried about potential trouble for the U.S. economy as the bond market tightens financial conditions.
Weekly jobless claims came in below expectations but continuing claims increased more than forecast — a mixed signal that could indicate the jobs market is losing steam.
Existing home sales fell to a 13-year low in September and mortgage applications struck the lowest since 1995. Weakness in housing, a key sector that drives economic growth, is likely being caused by mortgage rates, which recently touched 8.0%. https://tinyurl.com/5x46mh2w
Investors’ dollar skepticism may indicate a desire to discount a greater probability for a U.S. recession, and the possibility that the Fed will have to alter its tightening bias sooner than currently foreseen.
Should investors increasingly lean towards U.S. economic weakness, EUR/USD upside risks will grow.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
((christopher.romano@thomsonreuters.com;))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
