The bad news hit the US dollar but it was shocked that the V-shaped reversal of Powell would bring good news to the US dollar.

FX168 Financial News (Hong Kong) News Monday (February 26) in the European and American session, although the US announced new home sales data to pass the "bad", but the bulls still have not changed, the US dollar index re-ranked the 90 mark, staged V-type reversal. The euro was dragged down by political risks in the euro zone and continued to decline. This week, the market focused on Fed President Paul Powell's first show. Some analysts pointed out that the US dollar is currently cheap enough, and given the recent strong performance of the US economic data, the US dollar will be boosted if it releases hawkish remarks.

The data is re-transmitted "the bad news". The dollar dismissed and stood on the 90 mark again.

In the US market on Monday, despite the US public housing sales data, the US dollar index continued to rise, and the perfect V-type reversal.

Due to the sharp decline in the northeast and south, US new home sales fell for the second consecutive month in January, which may trigger market concerns about the property market slowdown.

The US Commerce Department said on Monday that seasonally adjusted January new home sales fell 7.8% to 593,000, the lowest level since August 2017. The sales rate in December was raised from the previously reported 625,000 to 643,000.

(US new home sales chart, source: Market Watch, FX168 financial network

Analysts had estimated that new home sales rose to 665,000 last month. New home sales account for nearly 10% of the housing market.

Sales in the Northeast fell by 33.3%, and sales in the South fell by 14.2%, which accounted for a large share of new home sales. New home sales in the West increased by 1.0% and the Midwest increased by 15.4%.

Housing sales, especially in the low-end market, are being constrained by a severe shortage of supply, which is pushing up house prices and putting some first-time home buyers out. In addition, higher mortgage interest rates may make buying a home more expensive, especially if wages do not accelerate. Although the unemployment rate has fallen to a minimum of 4.1% in 17 years, the annual wage increase is still below 3%.

Despite the “bad news” in the data, the US dollar index continued to rebound strongly in the early morning, once again targeting the key milestone of the 90 mark.

After hitting the bottom of the 89.51 intraday low, the index successfully attracted some buying interest, once again rose above the 90 mark, refreshing today's high to 90.04.

(US dollar index 30 minutes chart, source: FX168 financial network)

There is a view that the over-selling of the US dollar and the fact that the Fed’s January meeting on the meeting of interest rates provided a relatively optimistic tone, helped the dollar to be boosted last week.

Although the US 10-year bond yield has fallen sharply to a two-week low of 2.83%, it is still seeking a recovery. It is worth mentioning that the rate of return climbed to a four-year high of 2.96% last week.

Earlier today, St. Louis Fed President Brad was skeptical about the break in US Treasury yields from current levels, and he expressed concern that interest rates would go too far and too far.

Nordrade United Bank (Nordea) wrote on Monday that the market may have ushered in a consolidation period after absorbing a large amount of US bonds last week.

US fixed income (10-year US bond yields approaching 3%) and the US dollar valuation also attracted unfunded capital inflows, which limited US bond yields and boosted the dollar.

In addition, the weakening of European economic growth data also brought some support to the US dollar. The market sentiment in the Eurozone (Ifo, PMI, ZEW) was disappointing last week, which made the US dollar relatively more attractive.

As Japan’s fiscal year is coming to an end (end of March), the repatriation of exporters’ funds may also cause the USD/JPY exchange rate to fall to 105-106, but this may attract unhedged pension funds into the US, which may It will help curb US Treasury yields, but at the same time it proposes another related change: US Treasury yields are gradually lower, but USD/JPY is constantly rising.

If you are not worried about the decline in risk appetite, we believe that the upcoming March may offer a good opportunity to buy USD/JPY on dips.

From a technical point of view, the daily chart shows that the US dollar index has been in the range of 88.50-90.50 since the end of January. It failed to break through 90 failures last week and fell back, indicating that the index has fallen from the bottom of the range to the bottom of the range. risks of.

Short-term close attention to the support of the Bollinger Middle Track (20-day moving average 89.60), the break will open further downside, the downside target or point to 89.00 and 88.50.

However, if it is stable at 89.60, it may rebound. The rebound resistance is concerned with the 90 mark. If it can break through the mark, it may be stronger at the top of the test range of 90.50.

The political risk is still high, the euro finally tastes bitter

As the dollar rebounded, major non-US currencies retraced from high levels. The euro/dollar fell nearly 70 points from the day high to 1.2285, 1.2280 feet from the daily low. GBP/USD has fallen more than 130 points since the day high, and the refresh rate is as low as 1.3936. USD/JPY rose nearly 70 points from the previous day, and USD/CAD rose above the 1.27 mark to 1.2701.

(Euro/US Dollar 30 Minute Chart, Source: FX168 Financial Network)

For the euro/dollar, analysts said investors were cautious about aggressive investment this week due to political risks.

Italy will hold a general election on Sunday, and Germany’s main political party, Europe’s largest economy, will decide on a joint agreement that will allow Merkel to serve as the fourth prime minister.

ING said in a report, "We believe that the market may underestimate this risk, especially considering that if the political risk keeps rising slightly in the short term, the cyclical of the euro and the inflation driven by portfolio inflation may lose momentum. "

Nordic United Bank (Nordea) wrote last Friday that Germany's 10-year bond yields have been trading horizontally in recent weeks, limited to between 70 and 80 points. The spread between Italian government bonds and German government bonds has expanded, reflecting the growing concern before the Italian election on March 4. According to the latest statistics, Japanese investors also choose to reduce their holdings of Italian bonds. The minutes of the ECB meeting show that the European Central Bank is planning to abandon the easing policy and is also worried that the development of the foreign exchange market will become a source of uncertainty.

European Central Bank President Mario Draghi said in January that discussions on forward-looking guidance will not begin before March, so there will be no formal change until the next meeting.

European sentiment indicators (including PMI, IFO, ZEW) have been disappointing in the past week, and these results are in line with our view that global economic activity indicators will cool down. In addition, the euro zone will increasingly feel the negative impact of the appreciation of the euro last year, while the economic activity of the United States was boosted by the weakening of the dollar.

(German GDP growth began to slow down Source: Nordic United Bank, FX168 Financial Network)

The disappointment in macro data, coupled with the valuation of US fixed income and the US dollar, may help weaken the trend of US bond yields and the related “double deficit” theme, as unhedged 10-year US debt purchases may begin. Become attractive.

Therefore, we believe that the EUR/USD is facing huge resistance from the downward trend since 2008. As long as the euro/dollar monthly line fails to close above 1.27, the long-term trend line may still be lowered.

(EUR/USD is at an important threshold source: Nordic United Bank, FX168 Financial Network)

Analysts pointed out that weekly futures data showed that the euro's net long position fell for the third consecutive week. European Central Bank President Draghizhny said that the euro zone's economy has expanded strongly and the economic growth rate has been stronger than expected, but inflation has not yet shown more convincing signs of continued upward growth. At the same time, he pointed out that the market and foreign exchange fluctuations should be closely monitored.

From a technical point of view, since the exchange rate hit a high of 1.2555 on February 16, the exchange rate has continued to correct and fall back. Currently, it has found support near 34EMA. The support is at 1.2260 and 1.2205 and the resistance is at 1.2369 and 1.2393.

Karen Jones, head of technical analysis at FICC, a German commercial bank, pointed out that the EUR/USD rally may be subject to resistance at 1.2345-65.

Focus on Powell’s debut this week

The US dollar has rebounded recently, and the position data also shows that foreign exchange speculators have cut the size of the US dollar net position for three consecutive weeks.

The US dollar rose against the G10 currency last week, and the US dollar index rose for the third week in the past four weeks.

Data released last Friday by the US Commodity Futures Trading Commission (CFTC) showed that large traders and foreign exchange speculators cut their bearish dollar bets again last week.

The data shows that as of the week of February 20, non-commercial large futures dealers, including hedge funds and large speculators, held a US dollar net position of $8.17 billion. The previous week was $8.99 billion.

(US dollar net position source: Investing.com, FX168 financial network)

The CFTC data also showed that the overall short position of the US dollar has also improved for the third consecutive week, after hitting the most bearish level since October 10 on January 30.

The overall short position of the US dollar is currently below US$10 billion for the second consecutive week, which was higher than this level in the previous three weeks.

At present, foreign exchange traders focus on the first show of the Fed's new chairman, Powell. According to the schedule of the Fed's official website, Federal Reserve Chairman Powell will go to the National Assembly to attend the hearing on February 27 and March 1 and accept questions from members of Congress on the Fed's monetary policy.

So far, the Fed is expected to raise interest rates three times this year, and market participants began to shift the rate hike expectations four times.

Some analysts said that due to the strong data released by the United States recently, he may take a tough stance. If this is the case, it will be good news for the dollar.

Ray Attrill, head of foreign exchange strategy at National Australia Bank (NAB) in Sydney, said: "The dollar has rebounded slightly from the low point hit last week, which is partly due to the rise in US bond yields and may be very good for the Fed. The hint that the dot matrix has a risk of repairing is driving the rise in yields."

Satoshi Okagawa, senior global market analyst at Sumitomo Bank of Sumitomo, Singapore, said: "He (Powell) may not need to project any dovish image. But when stock prices are unstable, he does not need to say anything that sounds special at interest rates. The hawkish thing."

Proofreading: Sui Bin