US 10Y Treasury yield bounced off the key 3% area, dragging down greenback and initiating a chain of pullbacks in other assets that have demonstrated exuberant moves recently. DXY fell 0.6%, the sell-off started from the “round” 101 level as bidding eased on concerns of extreme USD valuation (2-year high), Gold pulled back from the key $2000 level, USDJPY made a U-turn in the area of 129.50.USD sell-off wasn’t preceded by any new important information on de-escalation of the conflict in Ukraine or a change in the position of the Fed. On the contrary, the “second stage of the special operation” of the Russian Federation in Ukraine is gaining momentum, and some Fed officials such as Bullard, do not rule out a 75 bp rate hike (three standard increases of 25 bp), comparing the recent performance of the US economy with an outstanding second quarter of 1990 when the Fed opted for 75 bp hike. This suggests that the sell-off has been driven by profit-taking trades. Bullish view on the USD is still valid however solid buying pressure will likely reappear when DXY reaches 100 level.Buyers also steered clear of the idea to buy Gold at critical $2000 level which became the trigger of a profit-taking move. Bearish momentum has been added to initial decline, as a result, the price fell to $1940. Barring major triggers of risk-aversion, the “second leg” of the correction will likely ensue from the $1955-1960 area. If price breaks out below the major trend line and finds little support below it, the sell-off will likely continue till the price reaches $1900. However, price staying above the trend line will likely invigorate bullish efforts and buyers may attempt to retake $2000 level:The Japanese Central Bank warned that USDJPY movements cause concern, but is in no hurry to intervene. In addition, the Bank of Japan once again announced unlimited purchases of 10-year bonds in the market in order to keep the yield below 0.25%, which once again underlines the striking gap between the Bank of Japan and its peers in terms of tightening policy. USDJPY went below the 128 level, the level of 127.50 remains the focal point for bulls as fundamental background in the Yen has not changed much – due to low domestic rates, Japanese investors will be forced to continue to search for yield in foreign markets, that will hold back the strengthening of the yen. Today it is worth paying attention to the content of the communiqué after the meeting of the G20 finance ministers, where the Japanese authorities can once again draw attention to recent excessive weakness of the yen.The economic calendar today is not particularly remarkable, markets may pay attention to the US home sales report for March, as well as speeches by the Fed officials, Evans and Daly. Evans said yesterday that he would support the idea of raising rates by 50 bp twice this year. European markets will be watching the Le Pen-Macron debate today to see what chances Le Pen has to narrow down the gap. Polls show significant lead for Macron – 56% vs. 44% for Le Pen.The pound resists dollar strength with price action being increasingly determined by expectations regarding BoE meeting on May 5th. The bank is expected to hike interest rate by 30 bp. The IMF has reduced growth forecast for the UK economy from 2.3% to 1.2%, it is interesting whether this will somehow be reflected in the Central Bank forecasts regarding policy moves this year. Barring hawkish surprises in the upcoming BoE’s Bailey speech, GBPUSD will likely struggle to rise above 1.31 level:
Source: Tickmill
