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U.S Positive Real Yield will Share Emerging Currencies

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What’s new?

Last week, the U.S 10y real yield moved to positive territory for the first time in two years. The level didn’t get hold for long but it is a signal that more pain is coming for emerging currencies. Indeed, the era of negative yields sent investors to chase higher yields in emerging economies. Now the FED is aggressively increasing interest rates, so we could see capital outflow from emerging economies rushing to USD.

Risk-on mode with Macron's victory

The EUR dropped despite Macron's victory in the French presidential election. It is probably a technical move as his re-election is a must for pro-business and pro-Europeans. EUR might reach the bottom soon. The positive real yield observed last week is a sign that the FED hiking pace expectation will normalize and it might be a signal for the market to be in risk-on mode.

Check-up on AUD rebound

The AUD may rebound from 4 weeks decline as inflation numbers due on Wednesday are expected to rise 3.4% in the first quarter. The main reason for the AUD/USD drop is the aggressive pricing FED hike expectation. An investor might pivot back to AUD as more clarity come from the RBA. Most economist see the AUD/USD pair ending around 0.75 by year-end.

What’s in the pipe?

  • Tech earnings include Alphabet, Meta Platforms, Amazon, Apple
  • EIA oil inventory report, Wednesday
  • Australia CPI, Wednesday
  • Bank of Japan monetary policy decision, Thursday
  • U.S. 1Q GDP, weekly jobless claims, Thursday
  • ECB publishes its economic bulletin, Thursday

FX Rates

USD/JPY @ 127.98 - bullish trend

EUR/USD @ 1.0732 - Bearish trend

GBP/USD @ 1.2749 - Bearish trend

AUD/USD @ 0.7170 - Bearish trend

USD/CNH @ 6.48 - Bullish trend

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