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Dollar index rally stalls, needs higher treasury yields

  • The dollar index (DXY) rally has stalled at the key trend line hurdle.
  • A spike in Treasury yields necessary to reignite USD rally.

The rally in the dollar index from the September low of 91.13 appears to have stalled around the resistance offered by the trendline sloping downwards from the Mar. 9 high and Apr. 10 high.

As of writing, the DXY is trading flat lined around 94.80 levels.

Focus on the 10-year treasury yield and US tax reform

Over the last two weeks, the 10-year treasury yield fell from 2.477 percent (Oct. 27 high) to 2.30 percent (Nov. 8 low). Consequently, the DXY has had a tough time rallying above 95.00 levels.

As for today, the fate of the greenback is dependent on the tax bill announcement. Kathy Lien from BK Asset Management writes, "reports that the Senate won't release its version of the GOP tax bill on Thursday is a sign of the challenges that the tax bill faces though it was unlikely that the Senate would have shared a version before the House Ways and Means committee finished marking up theirs.  Nonetheless the Republicans want to wrap-up the markup by Thursday, paving the way for a vote next week.  We could still see the dollar extend its gains when the House announces that they've finalized the bill." 

Dollar Index Technical Levels

An end of the day close above the descending trend line level of 95.02 would open doors for 95.53 (Jun. 29 low) and 96.32 (Jun. 14 low). On the lower side, breach of support at 94.75 (10-DMA) could yield a sell-off to 94.41 (Nov. 2 low) and 94.14 (Aug. 16 high).

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