The US Dollar traded higher against major currencies at the end of the week after Federal Reserve Chairman Powell expressed little or no concern about the recent surge in bond yields. The EURUSD continued its drop from mid-week and has now shed over 1.5 per cent over the last three trading days.

Powell said last week’s rise in yields (bond sales) was “notable and caught my attention” but was not “disorderly” or likely to push long-term rates so high that the Fed may have to intervene more aggressively. On the contrary, he reiterated his commitment to maintain an ultra-accommodating monetary policy until the economy is “very far along the road to recovery”.

Mr. Powell’s remarks spurred renewed sales of Treasury bills, with the 10-year bond yield rising above 1.5% and trading at 1.566% Friday morning in Asia. Last week it had climbed to a high of 1.614%.

A higher and more attractive yield also attracts demand for the greenback and, more importantly, falling equities push investors to look to the safety of the US currency. The USDJPY reached its highest level in 8 months after Powell’s comments, while the USDCHF reached its highest level in 4 months. The EURUSD fell sharply and is heading towards a very strong support zone between 1.18766 (61.8% Fibonacci retracement) and 1.19622 (50% Fibonacci retracement)

Another driving factor supporting the surge in the US Dollar Index on Friday to its highest level in three months was the surprisingly strong showing of the Non-Farm Payroll figures.  The U.S. Department of Labor reported +379,000 non-farm payrolls in February, double the expected +190,000, while the unemployment rate fell 0.1 percentage points to 6.2%, while it was expected to rise slightly to 6.4%, providing tailwinds to the greenback.

From a technical perspective, the main trend in the EURUSD is down on the daily chart. The pair has been accelerating to the downside and will likely pursue its course for at least a test of the 1.18766-1.18522 support channel before a reversal can be envisioned. That said, with the passing of the new US stimulus package over the weekend, traders should be cautious shorting the EURUSD at current levels as inflationary expectations may send the greenback into correction territory to the benefit of euro bulls.

Looking ahead the likely range in the EURUSD will be determined by trader reaction at the 1.187 handle. Should the pair hold above that level we can expect further consolidation to occur around the 1.19 psychologically significant level.

Support & Resistance Levels:

R3 1.21536
R2 1.20477
R1 1.19622
S1 1.18766
S2 1.17548
S3 1.16000

Analyzed by：Mr. Thibault Moirez，Independent Analyst