Dax hits all-time high, US dollar dips

After a shaky start, European equities are bounding higher. The Dax has surged to a fresh all-time high – its second in two days – as risk sentiment is being buoyed by optimism surrounding the global economic recovery. The FTSE is ahead of the pack in Europe despite miners having a hard time on falling base metal prices.

Vaccine rollouts are keeping up the pace, particularly in the UK and US, and economic reopening is going well so far. Conviction of a strong economic recovery is boosting risk sentiment and driving demand for riskier assets such as equities. Yesterday’s troubles of rising bond yields have been quashed, for now, and the US dollar is slipping lower.

An intervention by Chinese authorities into the Chinese stock market has been a tonic for investors. The authorities scooping up shares has stabilised the sell-off in tech stocks, which dominated on Monday. Looking ahead to the US open, the stateside tech-wreck looks set to recover with Nasdaq futures aiming 2% higher.

Of course, this could all change again with lightning speed if Wednesday’s US bond auctions don’t live up to expectations and tomorrow’s US CPI figures give cause for concern. Any sense that inflation expectations should be jacked up further is likely to send a chill through the markets.

With Joe Biden’s USD1.9 trillion stimulus package set to be signed, sealed and almost delivered in the coming days, rising inflation expectations are unlikely to disappear soon. Rising yields and a stronger US dollar are likely to become the new norm that the market needs to live with.

FX – USD pares yesterday’s gains, EUR takes 1.19

US dollar strength is waning as bond yields continue to ease lower. Soothing words from various central bankers and an intervention from Chinese authorities to shore up the stock markets appear to have calmed the sell-off in the bond market.

Yields on the US 10-year treasury have moved back to 1.56%, pulling the greenback off multi-month highs. While the US dollar is paring some gains from yesterday, March is still proving to be a stellar month for the greenback, which already trades more than 1.2% higher in March alone.

The euro, which was hit hard by yesterday’s US dollar strength, was among the top-performing majors today. Upbeat data from the Eurozone’s powerhouse added to the positive mood surrounding the common currency. German exports surged 1.4% MoM in January thanks to strong trade with China, which saw exports rise 3.1% an upbeat surprise that bodes well for further growth.

Despite today’s uptick, the technical outlook is still bearish as EURUSD trades below its 50, 100 & 200 SMA on the daily chart. Today’s bounce has pushed the RSI out of oversold territory, setting it up for more losses. Investors will look ahead to US CPI data and bond auctions tomorrow for further direction, but this could be a case of sell the bounce.

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