Dollar’s rebound loses momentum; yields remain volatile

During the Asian session, the Reserve Bank of New Zealand (RBNZ) will release the inflation expectation report for the fourth quarter. Japan will release the Leading Economic Index data. Later in the day, the focus will be on Fed Chair Powell’s speech.

Here is what you need to know on Wednesday, November 8:

The US Dollar pulled back during the American session and lost momentum amid reversals in Treasury yields and as stocks on Wall Street turned positive. The 10-year yield fell from 4.65% to 4.54%, while the 2-year yield dropped from 4.95% to 4.89%. The US Dollar Index rose for the second day but finished around 105.50 after reaching a two-day high at 105.77.

No top-tier reports are due from the US on Wednesday. The key event will be a speech from Federal Reserve Chair Jerome Powell. There appears to be little room for surprises. Fed officials agreed during their last appearances that data will guide the next decisions. While they do not rule out further tightening, it appears that the Fed is done raising interest rates. However, the decline of the US Dollar remains limited and exposed to important correction as fundamentals still favor the US.

EUR/USD rebounded at 1.0670 and climbed back to the 1.0700 area. The pair lost ground but maintained a bullish tone in the short term. On Wednesday, Germany will release the final reading of consumer inflation, which is expected to bring no surprises, and Eurozone will report September Retail Sales.

The Pound lagged on Tuesday. The Bank of England’s (BoE) policy outlook continues to sound dovish after last week’s monetary policy meeting. GBP/USD pulled back for the second day in a row and bottomed at 1.2262 before rebounding to 1.2300.

USD/JPY rose for the second day, despite the reversals in US Treasury yields, and tested levels above 150.50. The pair remains bullish in the short term but is losing momentum.

The Australian Dollar was among the worst performers on Tuesday, despite the Reserve Bank of Australia’s (RBA) rate hike. The central bank’s dovish tone weighed on the Aussie. AUD/USD found support at the 0.6400 zone and rose to 0.6430, boosted by a decline in the US Dollar during the American session.

Analysts at TD Securities on AUD/USD:

Near term, we see the AUD returning to the US$0.63-0.65 range. However, longer term we are bullish the AUD given our view that the USD correction has begun while Chinese stimulus should begin to bear fruit.

NZD/USD pulled back further from 0.6000 and bottomed at 0.5908 before turning higher and reaching 0.5940. The Reserve Bank of New Zealand (RBNZ) will release the inflation expectation report on Wednesday.

Metals remained under pressure. Silver is trading dangerously below $22.80 and hit two-week lows at $22.43. Gold dropped to $1956, a two-week low before trimming losses.