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The US dollar is rising with higher yields and plunging commodities. Where for USD? -by Ecork

US Dollar, DXY, Yields, Japanese Yen, Euro, US Dollar/Chinese Yuan, Australian Dollar, Canadian Dollar, NOK, NZD – Talking Points

  • US Dollar at 20-Year Highs, But DXY Lacks Trace
  • Commodities and a block of related currencies were damaged in the fallout
  • The US dollar is hitting multi-year highs against most currencies. Could DXY explode higher?

The US dollar rose on Monday and into Tuesday as US nominal and real yields continued to rise. The strength of the “big dollar” was more influenced by commodities and the currencies associated with them.

Oddly enough, the DXY, the most popular US dollar index, barely made a new high at the start of this week. This is largely because the Euro and the Japanese Yen have been relatively unharmed with the Dollar’s blitz so far, but this may not last.

US Dollar Index (DXY) vs. 10 Year Nominal and Real Returns

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The People’s Bank of China (PBOC) allowed the yuan to weaken to its lowest level since November 2020 on Monday. USD/CNY is now closing at levels above 6.7300, very high from 6.3600 seen 3 weeks ago.

The world’s second largest economy has allowed its currency to fall, and this may have more repercussions on the rise of the regional dollar. The desire of Japanese officials to lower the USD/JPY may become less clear.

Higher external yields are often associated with periods of yen depreciation and the BOJ’s design to maintain control of the domestic yield curve may come under more scrutiny. A pop rally in the USD/JPY pair cannot be ruled out.

The US dollar traded at levels not seen since 2020 against the Australian dollar, Canadian dollar, New Zealand dollar and the Norwegian krone – also known as the “commodity block”.

These currencies are subject to fluctuations in risk appetite as their core economies are seen as tied to global growth prospects due to their large exports of goods.

Energy, industrial metals, precious metals, and soft (agricultural) commodities are under pressure in this round of US dollar strengthening.

It should be noted though that the underlying problems with the supply of most of these commodities have not gone away. In particular, the war in Ukraine is ongoing and does not appear to be abating any time soon.

US Dollar Index (DXY) Technical Analysis

The US dollar index hit a 20-year high at the end of April, but failed to follow and appears to be slowing near the double tops of January 2017 and March 2020.

The DXY is a US dollar index that is weighted against the euro (57.6%), Japanese yen (13.6%), British pound (11.9%), Canadian dollar (9.1%), Swedish krona (4.2%) and Swiss franc (3.6%).

As discussed above, EUR and JPY haven’t lost much ground against the USD lately and this could explain DXY’s consolidation.

The latest rally at 104.187 might offer resistance. fracture under 10 days Simple Moving Average (SMA) It might indicate a shift in bullish momentum and support might be at last week’s low at 102.352.

DXY Index Chart

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— By Daniel McCarthy, Strategist for DailyFX.com

To connect with Daniel, use the comments section below or Tweet embed on Twitter

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