USD index strengthens overnight on higher US yields and weaker EUR/USD. German industrial production falls by -3.4%, dragging down the German economy and US yields gain 7-9bp due to heavy corporate issuance and the SLOOS survey.
The US dollar index, the DXY, dragged itself off support to close higher overnight, thanks mainly to higher US yields and weakness in the EUR/USD.
Building on last Friday’s post-non-farms payroll rally, US yields gained 7-9 bp overnight, driven by heavy corporate issuance and the Senior Loan Officer Opinion Survey (SLOOS) results that showed credit was not tightening as dramatically as feared.
A further easing of pressure on US regional bank stocks and weaker-than-expected industrial production data in German also supported the Greenback.
Specifically, German Industrial production fell by -3.4% vs -1.3% expected in March. Worryingly for the outlook of the German economy, the German automotive sector was the biggest drag, as the manufacture of motor vehicles and parts fell 6.5% in March.
Decreases were also noted in the manufacture of equipment (-3.4%), construction (-4.6%) and production of capital goods (-4.4%).
Whether this is the start of a run of weaker European data and a lower terminal ECB rate than previously expected remains to be seen. Possibly providing some insights on this today, Rehn, Centeno, Lane and Schnabel from the ECB are scheduled to speak.
DXY technical analysis
In 2023, the DXY has traded in a holding pattern between 100.80 on the downside and 105.80ish on the topside, primarily reflecting uncertainties around the banking crisis and the extent of the growth slowdown in the US and elsewhere.
In recent weeks the DXY has been encapsulated by resistance at 102.40/50 and support at 101.00/80ish. Should support at 100.80ish break on a sustained basis, we expect the DXY to test horizontal support at 99.50/40.
Until then, allow for further sideways-range trading, including a recovery back to the 105/106 area.
DXY daily chart
EUR/USD technical analysis
The EUR/USD continues to struggle with monthly resistance at 1.1075/95ish coming from the October 2000 .8231 low. If it breaks above on a sustained basis, it opens the way for the rally to extend to 1.1500.
Until then, allow for more corrective price action, including a corrective pullback to 1.0800. A sustained break of trendline support viewed below at 1.0990/80 (currently being tested) would be the first indication a corrective pullback is underway.
EUR/USD daily chart
- TradingView: the figures stated are as of May 9, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.