Global stocks rout further, driving funds into US Treasuries. Why would such a reaction support EUR/USD?
Dow Jones index dropped 4.15% or 1032 points overnight which leads to a 6.51% fall so far for this week. This was one of the biggest weekly drop since October 2008 when the global financial crisis broke out. Meanwhile, probability of Fed’s rate hike in March dropped as compared to earlier this month.
- US 10-year Treasury yield drop 1 basis point to 2.8240%, as stocks rout encouraged funds to move to safer assets.
- The chart below shows that US-German 10-year sovereign bonds yield spread narrowed in recent days as some flows moved into the US bonds market. A narrowing spread favours euro to appreciate against dollar.
- The chart below shows USD/JPY 1-month riskier slides as much as 0.12 vol to -2.28 vol, lowest since 24 April last year and one-month risk reversals rose to the highest in nine months. Both data suggest risks for dollar-yen remains to the downside which further confirms that investment portfolio is shifting into safe haven assets now.
- The strengthening of yen may also drag the dollar index lower, supporting the euro dollar.
- Probability of Fed’s hike in March dropped to 86.6%, versus 92.8% at the beginning of the month.
Fullerton Markets Research Team
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