Oct 10 (Reuters) – The dollar index weakened and EUR/USD tested key kijun resistance as Treasury yields fell versus bunds following Fed comments signaling less urgency for tightening, though markets will await U.S. PPI and CPI this week for a more definitive view on that.
There is some risk that the dollar and Treasury yield retreats from recent peaks are mostly corrective and will need further evidence disinflation is progressing steadily.
Treasury yields and the dollar slid from last week’s peaks despite unexpected and large increases in job openings and non-farm payrolls, partly because Fed speakers have noted that surging Treasury yields had reduced, or eliminated, the need for further rate hikes.
The pullback in yields lifted stocks and risk acceptance, which were dented early Monday by the conflict in Israel, further reducing demand for the haven dollar and yen.
If the core monthly PPI and CPI changes are as subdued as forecast, yields and the dollar could retreat further.
The recent flip to speculative long dollar trades just before it peaked could add further fuel to such a reaction.
EUR/USD needs to close above its daily kijun at 1.0623 by Tuesday’s highs to reinforce support from the modest rebound in 10-year bund-Treasury yield spreads.
USD/JPY came off an earlier failed attempt on Tuesday to clear the 10-day moving average, but prices would have to close below the kijun at 148.04 to raise red flags for the uptrend begun in July.
Sterling extended its rebound to the highest in 12 days, with 2- and 10-year Treasury yields down 12-14bp, though much of that fall was already implied by Monday’s tumble in U.S. short-term rates futures.
Risk-sensitive sterling’s 0.3% gain was somewhat underwhelming given the 1.8% rally in the FTSE.
Talk of new Chinese stimulus was offset by fresh woes in the beleaguered property sector, leaving the yuan little changed, as were Aussie and CAD.
Wednesday’s U.S. PPI overall and core rises are forecast at 0.3% and 0.2% month on month. More Fed speakers and minutes from Sep. 19-20 meetings are also on tap.
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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)
((Randolph.donney@thomsonreuters.com))
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