Fundamental Analysis: Demand for Cash/US dollars. Short-term moves in the US dollar are driven by changes in US systemic liquidity flows. When looking at the US exchange rate, the factor which determines its movement are long term yields. Long Term yields are effected by changes in systemic liquidity. Changes in systemic liquidity can be observed by looking at Shorter duration treasury bills/notes. The 02Year yield fell to new lows. The Eurodollar benchmark rate is also at record lows. Many money market rates are low. The system is flooded with cash. Pending debt ceiling discussion, requires the cash holdings of TGA to be reduced to a little less than $120 bln from over $1 trillion. This money will go to buy bonds. US 2-year premium over Germany has fallen 80 bp. While, the US 10-year premium over Germany is up to 1.61%. In short, US T-bill yields may dip below zero. Even if the Ten Year Yield drops the dollar can still rally because it is high quality and a better yield can not found elsewhere unless quality is sacrificed. Rates are not rising due to Increasing levels of Eurodollar positioning as foreign banks push reserves into U.S. Treasuries for "safety" and "yield." With the number of bonds with "negative yields" rising globally, the U.S. Treasury bond's positive yield and liquidity will likely keep it a preference for storage of reserves for now.
Powells Speech Yesterday confirmed that they will continue to buy 120 Billion in Large Scale Asset Purchases and maintain an accommodative Monetary Policy. The only thing that I can agree with Powell is the distinction he places on "actual" inflation vs. "inflation expectations". "inflation expectations" are caused by speculators looking to front run inflation.
There is a huge short interest on the US dollar, when it becomes apparent that DXY has bottomed, shorts will start to get unwound. WSB wya??, this is your next short-squeeze, pump DXY!!! The number of future contracts that are net short are at all time highs since 1990.
Technical Analysis: 1. Inverted Widening Triangle (Bullish) 2. Inverted H&S 3. Retest of falling wedge breakout 4. Near 0.5 retracement level of January Low to Feb High 5. RSI Oversold on 4hr 6. Formed Support around 90 7. Lower Area of Bollinger Band
If DXY sky rockets it will be short lived followed by a massive collapse. There are no macro economic reasons for the dollar to rise.
arama-nuggetrouble
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@SilverChad, DXY is the trade weighted dollar. DXY is compared to a basket of other currencies. The main currency with about 50% of the weight is the EURO. The Euro is one of the worst currencies out there. The Dollar is strong when compared to the Euro.
pitbull96
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@SilverChad, as @nuggetrouble has it this is correct EURO is 57.6% weight; Japanese yen 13.6%...They can go burrrrrr at a faster pace due to the lack of regs around "printing".
Next you have Banks having to purchase T-Bill from the open market because the Treasury Sec announced that they are going to stop new issues and the Banks require these for reserves. There are a few other things in play too with Bonds regarding the Fed QE program which is sucking liquidity out of the financial market too.
On top of this you also have the largest short position on the USD of all time so if it starts to break out its going to rip d to all the short covering.
I believe you are 100% correct though if it does rip up it is going to be short lived and there will be a massive sell off in the share market due to panic plus the amount of leverage that is currently being utilised.
Only time will tell.
Patrick_Jarvis
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GBP appreciation after BoE statements postpones move.