- Treasury yields rising for growth, not fear
- Safe haven appeal fading as risk appetite returns
- Fed cut bets unwind sharply, supporting the dollar
- USD/JPY surges to one-month highs
- USD/CHF flirts with breakout from month-long range
With little evidence that the US economy is entering a recession and negotiations between the US and other major trading partners trending in a positive direction, the case for hoarding safe havens looks increasingly weak in the current environment.
As outlined in a separate post on Thursday, with risk appetite roaring back, that bodes well for assets hit hardest during peak trade anxiety—including the US dollar. With the US recession risk unwinding faster than Donald Trump can post on Truth Social, US Treasury yields are now rising for good reasons, but not bad: the US growth outlook is improving.
With price signals from rates futures pointing to the risk of even higher yields near-term, the rallies in USD/JPY and USD/CHF may have further to run in the days ahead.
Perceptions around this weekend’s US–China trade talks loom as a key swing factor for markets—especially those conveyed by the US envoy given views from the Chinese government tend to be overlooked quickly by traders.
US Recession Postponed Again
The key US data point overnight was weekly jobless claims, with the surprise jump in the prior week quickly reversed, consistent with similar spikes seen earlier in the cycle. The 228,000 increase undershot expectations for a slightly larger rise of 230,000, and came in well below the prior 241,000 reading.
This is the closest thing markets have to a real-time snapshot of hard US economic data, making the signal particularly important. And right now, that signal is this: the US recession everyone’s been warning about still hasn’t arrived.
Source: TradingView
Combined with more upbeat comments on trade from the Trump administration, the two most powerful headwinds for the US dollar in April are now shifting to tailwinds. Trade deals—even if spurious in what they deliver—continue to be seen as a positive for US assets, including the buck.
It’s no surprise then that USD/JPY and USD/CHF ripped higher, especially with Treasury yields no longer rising on perceived increased risk, but because the economic outlook is improving.
US Treasury Yields Rise for ‘Good’ Reasons
Source: TradingView
The daily chart for 10-year Treasury note futures suggests benchmark US yields may have further to climb, with Thursday’s bearish engulfing candle warning of downside risk for price. It’s not usually an area I dabble in, but you could also make the case for a neckline breach of a head and shoulders pattern—another potential signal of lower prices and higher yields ahead.
Volumes weren’t spectacular on Thursday, so watch to see if sellers re-emerge on moves back towards the May 6 low of 112’30’5. Like the price signal, momentum indicators have shifted marginally into bearish territory, favouring selling rallies over buying dips.
Fed Rate Cut Pricing Dwindles
Source: TradingView
To reinforce the point that US yields are rising for good reasons, Fed rate cut pricing tumbled Thursday, with futures now implying just 64bp of easing this year—half the level seen straight after Liberation Day in early April. The US 5s2s curve also bears steepened, suggesting that even with fewer Fed cuts priced in, nominal growth expectations are picking up.
I like this curve because it’s less affected by shifts in term premium on longer-dated Treasuries (the extra yield investors demand for uncertainty), giving a cleaner read on how bond traders see the medium-term nominal growth outlook (real GDP plus inflation) evolving based on Fed policy expectations.
In a nutshell, the appeal of safe havens is understandably waning.
USD/JPY Goes Boom!
Source: TradingView
USD/JPY surpassed the May 2 high of 145.92 on Thursday but has since eased back towards it, making it a key near-term level to watch. If the price can hold above, it may encourage bulls to buy the break, putting a test of the 50-day moving average on the table—currently at 146.36. A break of that could open the door to a run at 148.20, which acted as both support and resistance earlier this year. If 145.92 fails to hold, there’s little visible support until 144.00.
Momentum indicators are now more neutral than outright bearish, increasing the importance of price action in the near term. The longer RSI (14) and MACD continue to trend higher, the stronger the case to favour buying dips and bullish breaks.
It’s not linked to technicals, but definitely worth calling out: Fed 2025 rate cut expectations have been extremely correlated with USD/JPY this week, with a correlation coefficient of 0.97—that’s almost perfect.
USD/CHF Testing Key Level
Source: TradingView
USD/CHF is testing the top of its recent trading range at .8334, tagging the level again on Thursday before pulling back slightly into the close. While it hasn’t broken through yet, for the first time in over a month, momentum signals are no longer outright bearish with both MACD and RSI (14) trending higher towards more neutral levels. Selling rallies is no longer the preferred bias.
If the price breaks cleanly above .8334, .8375 looms as the next key level, coinciding with the September low from last year. A break there could mark a more meaningful reversal of the 2025 bearish unwind. On the downside, bids may emerge around .8275, the April 22 uptrend near .8230 today, and .8200.
As with the yen, Fed rate cut expectations may remain a key influence on USD/CHF near-term, with a correlation coefficient of 0.92 with the shape of the 2025 Fed funds futures curve over the past week.