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Analysts at TD Securities explained that market sentiment was broadly downbeat on concerns about spillovers from the recent selloff in Treasuries, leaving equities in the red (SPX: -0.8%, TSX: -0.4%).

Key Quotes:

“10yr UST yields opened the North American session at 3.22%, up 4bps from Wednesday’s close, before recovering to end the day little changed.

The USD saw a mixed session, taking some steam out of the recent rally. GBP (+0.6%) led the G10 currency complex against the USD on progress in Brexit talks over the Irish border while USDJPY (-0.6%) retraced below 114 after failing to break through resistance. USDCAD (-0.4%) traded through 1.29 for the first time since Monday’s NAFTA announcement. AU retail sales and North American employment reports are Friday’s main risk events.

What we’re watching in markets
“Given some of the oddities associated with the recent leg-up in yields, FX markets may need more convincing. Enter payrolls. We expect the USD to take its cue from USTs, although USD positioning is already sitting quite long, suggesting potential for an asymmetrical reaction on a surprise.”

“We will look to USDJPY for broad USD direction, but given repricing in long-end fed funds, the significance of 115 grows as formidable resistance. 113.50 should offer notable support. Dollar bloc FX remains vulnerable to additional UST selling should payrolls/wages come out firmer.”

“Despite early selling pressure in Treasuries on the back of the move higher in JGB and bund yields, the drop in equities brought some flight to quality demand. The curve continues to steepen, which suggests that this US rates move is more technical in nature rather than a repricing of Fed or growth/inflation fundamentals.”