Dollar Strengthens as Bond Yields and Oil Prices Surge
Markets have become increasingly confident that the Federal Reserve will raise rates by 25 basis points on Wednesday, which is almost a done deal as far as market pricing is concerned.
The latest surge in oil prices has added to inflation concerns and made the prospect of rapid monetary easing harder to square with the market backdrop. The 10-year Treasury yield has moved above 5% for the first time since 2007, while Brent crude has climbed to around $107 a barrel.
Rising energy prices are never a good thing for countries that rely on energy imports, and the eurozone is no exception, with around 95% of its crude oil needs provided by foreign suppliers. The pressure on European equities is becoming harder to dismiss as a temporary bout of caution, with major indices extending their declines as the latest rise in oil prices collides with a sharp deterioration in the bond-market backdrop.
The EUR/USD has remained undermined after breaking below its triangle pattern's lower trendline yesterday and taking out support around 1.1565 to 1.1580. If selling pressure continues, the next bearish objective is the 1.1500 handle, with further lower targets at 1.1405 and the June low at 1.1325.