Yields Continue to Rise, US NFPs Under the Radar

The US dollar continued to strengthen and equities kept sliding as bond yields continued to rise. This may have been the result of comments by Fed Chair Jerome Powell, who, apparently, did not sound as dovish as many may have expected. As for today, the main event on the agenda may be the US employment report for February, where a decent report may add more fuel in the rally of Treasury yields.

USD Strengthens as Yields Keep Rising, US Jobs Data in Focus

The US dollar continued trading higher against all but one of the other G10 currencies on Thursday and during the Asian session Friday. It gained the most against NZD, NOK, AUD and CHF, while it was found virtually unchanged versus CAD.

The strengthening of the US dollar suggests that government bond yields continued to rise, which in turn may have hurt even more the equity market. Indeed, turning our gaze to the equity world, we see that, although major EU indices finished their sessions mixed, the US ones tumbled on average 1.52% each. The negative sentiment rolled over into the Asian session today as well, with Japan’s Nikkei 225, China’s Shanghai Composite, and Hong Kong’s Hang Seng sliding 0.23%, 0.04%, and 0.31% respectively.

Once again, the highlight in the financial world was another round of rising yields, which this time may have been the result of comments by Fed Chair Jerome Powell. The Fed Chief stuck to his dovish stance that he and his colleagues will keep monetary policy extra-loose until there is substantial progress toward the Committee’s employment and inflation goals, but he also added that, although the increase in yields was “notable”, he does not consider it a “disorderly” move that could prompt the Fed to intervene in order to bring yields down. This may have disappointed those expecting a more dovish language, and that’s why yields rose further and equities retreated more.

Yesterday, apart from the rise in bond yields, we also had an OPEC+ decision, with OPEC and its allies agreeing not to increase supply in April, as they wait for a more substantial recovery in demand, due to the coronavirus pandemic. Oil prices rallied after the announcement, encouraging CAD-traders to buy the Loonie and keep it as the only currency that did not depreciate against the US dollar. The rally in oil prices is even more important as it comes in the mists of sliding equities and a strong US dollar. Thus, with that in mind, we expect oil prices to continue trending north for a while more, something that may keep the Loonie supported as well.

As for today, the main event on the economic agenda may be the US employment report for February. Nonfarm payrolls are expected to have increased 182k from 49k in January, and the unemployment rate is forecast to have held steady at 6.3%. Average hourly earnings are expected to have risen 0.2% mom, the same pace as in January, something that will take the yoy rate down to +5.3% from +5.4%. In our view, a decent report, although it would mean that the US economy is performing better than expected, may also intensify fears over rising inflation and thereby push Treasury yields even higher. Thus, equities may slide further and the US dollar may strengthen.

Having said all that though, we stick to our guns that the decline in equities may be a corrective phase. The reason is that the Fed has noted that they will not tighten policy even if inflation overshoots 2% in the months to come. They clearly said that they expect such a spike to be temporary and that inflation will rise and stay above 2% for some time — the goal for the beginning of normalization — in the years after 2023. As a result, we expect fears over high inflation to ease in the foreseeable future, which may allow equities and other risk-linked assets to rebound. As for the dollar, it may come under selling interest on more signs that the Fed is likely to stay accommodative for longer than previously assumed.

Nasdaq 100 — Technical Outlook

During Tuesday’s trading session, the Nasdaq 100 index reversed to the downside and since then, it’s been drifting lower. The price is now trading below a short-term tentative downside line taken from the high of February 16th. Even if we see a small retracement back up, if the index struggles to break that resistance line, the downside scenario could be more viable. Hence our somewhat negative approach for now.

If the 12310 zone, marked by yesterday’s low, continues to provide support for a while, we may see a rebound back up. However, as mentioned above, if Nasdaq 100 remains somewhere below the aforementioned downside line, another drop could be possible. The price might end up drifting to the 12310 obstacle, a break of which would confirm a forthcoming lower low and open the door for further declines. That’s when we will aim for the 12219 area, a break of which may test the 12087 level. That level is marked by the high of November 16th and the low of November 30th. Around there the index might test the 200-day EMA, which could provide additional support.

Alternatively, if the previously discussed upside line breaks and the price also rises above the 13054 hurdle, marked by the inside swing low of March 2nd, that could invite more buyers into the field, potentially placing Nasdaq 100 back above all of its EMAs. The index might travel to the 13355 obstacle, a break of which may lead to the 13472 zone, or the 13632 level, marked by the low of February 18th and the high of February 22nd respectively.

NZD/USD — Technical Outlook

After reversing to the downside at the end of February, NZD/USD has been sliding, while trading below a short-term tentative downside resistance line taken from the high of February 25th. The pair is also sitting below all of its EMAs on our 4-hour chart, which may support the downside scenario for now. Hence our bearish stance for now.

After yesterday’s drop, the pair found support near the 0.7157 hurdle, which is the low of February 17th. Given the sharp fall, NZD/USD might correct back up a bit, but if it struggles to get back either above the 0.7209 zone, marked by the low of March 2nd, or above the aforementioned downside line, another slide could be possible. If so, the rate may break the 0.7157 obstacle and target the 0.7135 area, or the 0.7105 level, marked by the lowest point of February and the low of January 28th respectively.

On the other hand, if the previously-discussed downside line breaks and the rate rises above the 0.7227 barrier, marked by the low of March 3rd, that may attract more bulls into the field. This way NZD/USD might travel to the 0.7272 zone, marked by yesterday’s high. If that zone is not capable of stopping the acceleration, its break could open the way to the 0.7303 and 0.7307 levels, marked by the highs of March 3rd and 2nd respectively.

As for the Rest of Today’s Events

Apart from the US employment report for February, we also get the US and Canadian trade balances for January. The US deficit is forecast to have widened somewhat, while the Canadian one is expected to have narrowed. Canada’s Ivey PMI for February is also coming out but no forecast is available.

As for the speakers, we have two on today’s schedule and those are BoE MPC member Jonathan Haskel, and Atlanta Fed President Raphael Bostic.

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