FXTM information and reviews
FXTM
93%
IronFX information and reviews
IronFX
92%
Libertex information and reviews
Libertex
91%
FXCC information and reviews
FXCC
90%
FxPro information and reviews
FxPro
88%
OctaFX information and reviews
OctaFX
86%

Dollar squeezes alternative reserve currencies


31 March 2021

The US currency is developing an offensive, particularly pronounced in pairs with the yen and euro. In both cases, this is due to stricter yield management by national central banks compared to the Fed’s stance. With such a market reaction, we could well be talking about a return of carry-trade: a trading idea that was most prominent before the global financial crisis 13 years ago.

Investors are receiving much more attractive yields on long-term US bonds than on the corresponding Japanese bonds. The yield spread of 10-year yields has widened from 0.9 to 1.64 percentage points so far this year. This, in its most active phase, was the main reason for the USDJPY rally today from 102.6 to 110.90, which is more than 8%.

The markets are waiting for the Bank of Japan to update how much more bonds it intends to purchase in April. The volume increase would be a repeat of the ECB move, which we have seen earlier in March. Should that be the case, yield spreads might widen, pushing USDJPY further up with a near-term milestone at 112. The pair could then aim for the 114-115 area, where the last four years have repeatedly reversed to a decline, although the spread was then as high as 3 p. p. at one point.

It is worth noting that a rising spread between US and German government bond yields, as in Japan, has been observed in the markets since July. However, it has only had a noticeable impact on the currency pair this year, pushing EURUSD back from 1.2330 at the start of January to 1.1700 now (-5%).

At the moment, the spread had returned to pre-crisis levels but is still a long way from its late 2018 peak, when it reached 2.8p and later stabilised at 2.4p. This does not at all mean that EURUSD will fall another 5%, reaching 1.1100-1.1200. Rather sooner than later, it will lose sensitivity to these changes, finding support just below 1.1500.

That said, the difference in approach between central banks remains clear and significant (more softness from the ECB and BoJ versus a closed eye from the Fed), which promises to soon provide further support to the dollar in pairs with the euro and the yen.

#source

Share:


Related

The EUR/USD Price Prediction 2022. The Bulls or the Bears, Who Will Prevail?
The EUR/USD Price Prediction 2022. The Bulls or the Bears, Who Will Prevail?

Euro/US Dollar (EUR/USD), for which we will provide the price forecast for the year 2022, is the most actively traded currency pair on the foreign exchange market, also known as Forex or FX...

2 Dec 2021

The greenback remains calm
The greenback remains calm

EURUSD is rather calm on Thursday; the pair is waiting for the news. The major currency pair reached stability while waiting for the news. The current quote...

2 Dec 2021

EURUSD is "seasick"
EURUSD is "seasick"

EURUSD will have to consider an earlier reduction of the US QE programme. The major currency pair reached stability on Wednesday after "rolling in rough weather" the day...

1 Dec 2021

The demand in the greenback is increasing
The demand in the greenback is increasing

After making a short pause on Friday, EURUSD is falling again. The major currency pair is under pressure again after a short break. The current quote for the instrument...

29 Nov 2021

The Euro's oversold is a sign for more volatility to come
The Euro's oversold is a sign for more volatility to come

The Euro fell against the dollar to 1.1200, a new 16-month low, having lost more than 4% in the last four weeks. The downward trend in the single currency accelerated...

26 Nov 2021

EURUSD is knocked out again
EURUSD is knocked out again

After testing another “bottom”, the major currency pair is consolidating. EURUSD continued falling and tested another low yesterday; right now, it is consolidating....

25 Nov 2021


HotForex information and reviews
HotForex
85%
XM information and reviews
XM
80%
FXCM information and reviews
FXCM
79%
AvaTrade information and reviews
AvaTrade
76%
LegacyFX information and reviews
LegacyFX
75%
FP Markets information and reviews
FP Markets
72%

© 2006-2021 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.