Dollar Still Appears To Carving Out A Bottom

The US dollar turned in a mixed performance over the past week. The technical indicators continue to support our expectation that after correcting since mid-December, following the Fed’s hike, the dollar is basing. 

A seemingly necessary precondition is higher US rates. The US 10-year yield bottomed near 2.30% early last week and finished near 2.45%, after having pushed through 2.50% earlier.. The 2.50%-2.57% area is a band of congestion from last month. The March note futures peaked at 125-13 on January 17, and by the end of the week, it was flirting with the 50% retracement of the gains since the Fed’s hike (123-30). The 61.8% retracement is near 123-19. The bottom of congestion is seen near 123-00. The MACDs are just crossing lower, while the Slow Stochastics have been gradually trending lower for the better part of two weeks. The five-day average may slip below the 20-day average for the first time this month in a few days. 

The US 10-year premium over Germany widened by six basis points over the past week to 3.16%. The spread recorded the multiyear high on December 16 near 3.39%. The US premium over Japan widened eight basis points to 2.42%. That is the highest of the year. It peaked near 2.51% on the day the Fed hiked. 

The US two-year premium over Germany was off by a single basis point, a little below 1.90%. It peaked near 2.05% on December 15 and December 28. The low point has been around 1.88%. The short-end spread seems to be more important for the euro than the long-end spread. The US two-year premium over Japan has been more stable than against Germany. It peaked a little above 1.46% on December 15 and finished last week near 1.45%. 

The Dollar Index set the corrective low on January 17 near 100.25. It recovered 150 points before consolidating ahead of the weekend. The MACDs and Slow Stochastics continue to suggest the downside correction is in its last stage. A move above 102.00 would likely indicate the bull trend has resumed. 

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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