US Dollar Outlook:
- Rising US Treasury yields aren’t helping the US Dollar as rising inflation pressures are outpacing near-term growth expectations following the April US non-farm payrolls report.
- The DXY Index is sustaining the loss of its uptrend from its intrayearly swing lows, while USD/JPY rates are in the early stages of funneling into the vertex of a symmetrical triangle.
- The IG Client Sentiment Index suggests that USD/JPY has a bullish bias in the near-term.
US Dollar Bleeding Continues
The US Dollar can’t catch a break as May plods forward, despite seemingly having a tailwind amid the best month of the year from a seasonal perspective. Alas, the best laid plans of mice and men often go awry. This statement rings perfectly true for the US Dollar in the case of US Treasury yields, which have been steadily recovering since the disappointing April US non-farm payrolls report – and the US Dollar (via the DXY Index) has not benefited in the slightest. And yet this is not a surprising turn of events.
US Treasury Yield Curve (1-year to 30-years) (February 2020 to May 2021) (Chart 1)
In the prior US Dollar forecast update, it was summarized that “US Dollar bulls should think twice before being lulled into a false sense of safety that rising US Treasury yields will automatically bring about greater fortunes for the DXY Index, even as the calendar turns to May.”
The rationale at the time remains viable: “there is a fly in the ointment: inflation pressures. With the Federal Reserve just yesterday signaling its intent to keep their main rate low come hell or highwater, the prospect for soft agricultural commodities like corn and wheat or industrial metals like copper to continue to rally in the near-term remains strong. Accordingly, rising near-term inflation expectations may outpace gains in US Treasury yields, which are nominal, thereby exerting downward pressure on real US yields again.”
Careening after the April US jobs report, the narrative around the US Dollar, US Treasury yields, and the US economy can only be restored by one development: better US economic data. The second half of this week has a distinct North American focus, providing the greenback ample opportunity to try and change the narrative.
DXY PRICE INDEX TECHNICAL ANALYSIS: DAILY CHART (March 2020 to May 2021) (CHART 2)
At the end of April it was noted that “with losses entrenched at the moment, it remains the case that ‘the DXY Index is in the throes of a bearish rising wedge formation, which ultimately calls for a return to the February low at 89.68.’…the path of least resistance may still be lower yet, until running into rising channel support off the January and February lows; this channel may ultimately prove to be a bear flag.” The DXY Index has dropped below this rising channel support, the uptrend from the intrayearly swing lows.
The broad US Dollar gauge…
Read More: DXY Index Losing Support; USD/JPY Coils into Triangle