Forexlive Americas FX news wrap 29 May: The USD moves higher with higher yields.

• US stocks close lower with the Dow Industrial Average falling another -411 points
• EURUSD sellers making a play today but has the lows from the last few weeks to get below.
• Crude oil futures settle at $79.23
• Banxico: Sees average headline inflation at end of 2024 at 4% vs 3.5% previous
• Highlights of the National trends from the Fed’s beige book for May 2024
• The US treasury auctions $44B of 7-year notes at high yield of 4.65%. WI level 4.637%
• BofA: Caution against selling USD on improved China sentiment
• With one week until the Bank of Canada decision, what’s priced in?
• European equity close: Most of the monthly gains are gone
• US dollar gathers momentum as yields continue to rise
• Former Goldman Sachs co-head of short-term macro trading lands in Cleveland Fed top job
• US May Dallas Fed services sector outlook -12.1 vs -10.6 prior
• OPEC delegates say rising global inventories could strengthen the case for keeping cuts
• Richmond Fed May manufacturing index 0 versus -7 prior
• Jamie Dimon: The chance of stagflation is more than most people think
• Kickstart the FX trading day for May 29 w/a technical look at the EURUSD, USDJPY & GBPUSD
• The USD is the strongest and the AUD is the weakest as the NA session begins
• ForexLive European FX news wrap: Dollar gains slightly on softer risk mood

The USD moved higher aided by rising yields. For the 3rd auction of coupon notes this week, the demand was less than ideal. Yesterday it was the 2 and 5-year auction. Today it was the 7-year note.

For the trading week, the 10 year yield is not up close to 15 basis points while the 2-year yield is up 3 basis points. That has seen the 2-10 year spread rise to -35.9 basis points from -47.9 basis points on Friday.

The Richmond Fed Manufacturing index moved to 0 from -7 prior.

The Fed released its Beige Book (prepared by the Dallas Fed) today. The report seemed to be leaning more toward the slowing side, but with growth, employment and prices still expanding/rising.

From early April to mid-May, the report said that national economic activity expanded, though conditions varied across industries and Districts. Most Districts experienced slight or modest growth, with two reporting no change. Retail spending was flat to slightly up, marked by lower discretionary spending and heightened price sensitivity. Auto sales were roughly flat, with some manufacturers offering incentives. Travel and tourism strengthened, although hospitality outlooks for the summer were mixed. Demand for nonfinancial services increased, while transportation services showed varied results. There was solid demand for nonprofit and community services, and manufacturing activity was generally flat to up, except for declines in two Districts. Lending growth was constrained by tight credit standards and high interest rates. Housing demand rose modestly, and single-family construction increased despite rising rates impacting sales. Commercial real estate conditions softened. Energy activity remained stable, and agricultural reports were mixed, with eased drought conditions but ongoing concerns over farm finances. Overall outlooks grew more pessimistic due to rising uncertainty and greater downside risks.

On prices, overall trends in the US increased modestly, but consumer pushback against these increases resulted in smaller profit margins for businesses. To attract customers, retailers offered discounts. Despite some price declines in certain construction materials and manufacturing raw materials, input costs, particularly insurance, continued to rise. Modest price growth is expected in the near term.

Finally, employment in the US rose slightly overall, with eight Districts reporting modest job gains and four noting no change. Labor availability improved, although some industries still faced shortages. Employee turnover decreased, giving employers more bargaining power. Hiring plans were mixed, with some Districts anticipating modest job gains and others pulling back due to weaker business demand and economic uncertainty. Wage growth remained moderate, with some Districts seeing modest increases and a return to pre-pandemic levels.

At the end of the day, the USD is ending the day as the strongest of the major currencies. while the AUD and the CAD are the weakest. With the CHF and the JPY also tilting to the upside,there was more of a risk-off sentiment in trading today.

US stocks support that idea with declines in all the major indices:

• Dow industrial average fell for the fourth time in five trading days (the one up day was a 0.01% gain). It was seven days ago that the Dow industrial average closed at 40,003. Today, the index fell -411.32 points or -1.06% to 38441.55 (-1561.45 or -3.9%)
• The S&P index fell -39.07 points or -0.74% at 5266.96
• The NASDAQ index fell -99.30 points or -0.55% at 16920.58. They came one day after closing above 17,000 for the first time that 17032.

As mentioned yields were a major catalyst for the dollar’s rise and the stock market’s fall:

• 2-year yield 4.974%, +1.8 basis points
• 5-year yield 4.64%, +6.1 basis points
• 10 year yield 4.615%, +7.4 basis points
• 30-year yield 4.735%, +8.0 basis points

Looking at some of the major currency pairs:

• The EURUSD is trading below its 100-day moving average of 1.08099. Its 200-day moving average at 1.0784 is the next key target, that if broken, would increase the bearish bias.
• The USDJPY is trading to the highest level since May 2 at 157.70. The May month high comes in just below the 158.00 level. Baggage and intervention that the price lower on that day
• The GBPUSD is testing a swing level at 1.2700. Break below that level and a swing area between 1.2674 and 1.2686 would be targeted, followed by the 38.2% retracement of the move-up from the May low at 1.26642.

Thank you for your support today. Wishing all good fortune in the new trading day.

This article was written by Greg Michalowski at www.forexlive.com.