Original article by Vladimir Zernov | Source: FX Empire
U.S. Dollar Rallies as Treasury Yields Soar: In-Depth Analysis of EUR/USD, GBP/USD, USD/CAD, and USD/JPY
The U.S. dollar saw significant gains recently, powered by rising U.S. Treasury yields and a shift in market sentiment toward higher-for-longer interest rates. As investors recalibrated their expectations around the Federal Reserve’s monetary policy stance, the greenback strengthened across major currency pairs. In this article, we’ll examine the primary drivers of the U.S. dollar’s strength and provide detailed technical analysis on EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
Key Drivers Behind the Dollar’s Strength
Multiple factors converged to boost the U.S. dollar’s performance in recent sessions, signaling a potential shift in market trends.
Main catalysts include:
– **Rising U.S. Treasury Yields**: Benchmark yields on the 10-year and 2-year Treasuries climbed sharply. The 10-year yield approached 4.50 percent, while the 2-year yield broke above 5 percent. Higher yields increase the relative attractiveness of U.S. assets, drawing in foreign capital and boosting demand for the dollar.
– **Hawkish Fed Commentary**: Federal Reserve officials reiterated their commitment to taming inflation, suggesting that interest rates could remain elevated for a longer duration. Market odds for rate cuts have been pushed out, supporting the dollar.
– **Market Risk Sentiment**: Renewed concerns over inflation resilience and global economic growth led to a pullback in risk assets. In times of uncertainty, the dollar often acts as a safe-haven currency.
– **Economic Data Surprises**: U.S. economic data has generally been more robust than that of its major peers, further widening the growth and interest rate differentials supporting the dollar.
In the forex market, these developments translated into sharp moves across major pairs. Let’s examine the implications on key currency crosses.
EUR/USD: Bearish Pressure Intensifies Below 1.0900
EUR/USD came under steady pressure as the dollar surged. The pair broke below key technical support levels, signaling an extended bearish trend.
Technical Outlook:
– **Resistance**: The nearest resistance lies at 1.0885. A breakout above this level could clear the way toward the 1.0900 zone, which previously acted as support.
– **Next Hurdle Above**: Further resistance can be found at 1.0925. Bulls would require a confirmed break above both resistance points to regain momentum.
– **Support Levels**: The pair slipped toward 1.0830. If bearish pressure continues, traders will focus on support near 1.0800.
– **Momentum Indicators**: RSI and MACD both trend lower, confirming downside momentum.
Recent eurozone economic data, including weak industrial activity and subdued inflation, have not supported the common currency. Combined with diverging interest rate expectations between the European Central Bank (ECB) and the Fed, the EUR/USD pair remains vulnerable to further declines.
GBP/USD: Trend Weakens as Dollar Strength Dominates
Sterling continued to lose ground against the strengthening dollar, with GBP/USD falling toward the 1.2700 handle.
Technical Outlook:
– **Immediate Support**: Located at 1.2700, close to the recent consolidation area. A sustained drop below this level increases downside risk.
– **Further Support Below**: If sellers remain in control, the next target will be around 1.2670.
– **Resistance Levels**: The pair faces initial resistance at 1.2750. A breakout could lift the pair towards the higher barrier at 1.2785.
– **Trend Indicators**: Momentum indicators such as the RSI suggest bearish dominance. The 50-day moving average has flattened, signaling a potential trend shift.
Fundamentals underpinning the British pound have softened,
Explore this further here: USD/JPY trading.