Light Docket Puts Focus on Developing Theme - Higher US Yields and USD

The Federal Reserve held QE3 in place at $85B/month but that has done little to stop the US Dollar’s revival. On the back of an improved labor market outlook, the world’s reserve currency has coat-tailed US Treasury yields higher, climbing back to its highest aggregate level (as measured by the Dow Jones FXCM Dollar Index (Ticker: USDOLLAR)) since June 3. The 10-year US Treasury note yield topped 2.500% on Friday for the first time in 22-months, if to underscore the dramatic shift transpiring.

In the week ahead, this developing theme – alongside the Chinese credit crunch – are likely to guide markets in the days ahead as the calendar is significantly lighter. There are several ‘high’ significance events on the calendar, but nothing close to the magnitude of last Wednesday’s Fed policy meeting. Overall, volatility is expected to remain high, and with upwards of seven Fed speeches over the coming days, the US Dollar’s trajectory, while upward, could see some added turbulence.

Rate Hike Probabilities / Basis-Points Expectations

Light_Docket_Puts_Focus_on_Developing_Theme_-_Higher_US_Yields_and_USD_body_Picture_4.png, Light Docket Puts Focus on Developing Theme - Higher US Yields and USD
Light_Docket_Puts_Focus_on_Developing_Theme_-_Higher_US_Yields_and_USD_body_Picture_4.png, Light Docket Puts Focus on Developing Theme - Higher US Yields and USD

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

06/25Tuesday // 12:30 GMT: USD Durable Goods Orders (MAY)

US monetary policy is dominating headlines and the market’s main concern is when the Fed will begin tapering QE. Fed Chairman Bernanke stated that the decision to begin tapering will be based off of economic data. Durable goods numbers are indeed important because consumers usually buy durable goods when income conditions are better—otherwise consumers may choose to wait until the economy improves before buying a refrigerator, for example. Durable goods orders are expected to increase +3.0% m/m (down from +3.5% in April), according to a Bloomberg News survey. The US consumer has in fact shown resilience so far this year while other sectors such as manufacturing as slowing. Tuesday will show if this trend continues.

CONSENSUS: +3.0% m/m

PRIOR: +3.3% m/m

The key pairs to watch are EURUSD and USDCAD.

06/25Tuesday // 14:00 GMT: USD Consumer Confidence (JUN)

US consumer confidence has been the stabilizing force keeping consumption trends boosted, as the payroll tax hike and fiscal budget sequestration have presented sizeable obstacles. Confidence surveys serve as leading indicators for the broader economy, and often have a noteworthy correlation with equity markets. Likewise, the brief setback in US equities should only lead to a brief setback in the Conference Board’s Consumer Confidence index, and the headline should remain near its highest level since February 2008.