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Dollar Index - 94.00 handle is tough nut to crack

  • The dollar index (DXY) failed to hold above 94.00 levels.
  • Yield curve flattening continues.
  • 50-day MA and 100-day MA converge.

Last Wednesday's rebound from the rising trendline (drawn from the Sep. 8 low and Sep. 20 low) lacks vigor as indicated by the repeated failure around 94.00 levels.

Treasury yield curve has turned flattest since 2007

The yield curve as represented by the spread/difference between the US 10-year yield and the 2-year yield fell to 60.5 basis points (bps); the lowest level since Oct. 2007. The difference averaged around 66 bps last week.

The steady decline represents weak inflation expectations. An argument could be made that flattening of the curve represents increased odds of a faster Fed rate hikes. However, in that case, the DXY could have easily jumped above 94.00 levels.

Still, the index holds above the rising trendline. Further, the daily chart also shows the 50-day MA has bottomed and is about to cut the 100-day MA from below in the USD positive manner.

Dollar Index Technical Levels

As of writing, the index is trading 93.76 levels. An end of the day close below the trendline support of 93.64 would mean the rally from the Sep. 8 low of 91.13 has topped out at 95.15 (Nov. 7 high). The 14-day RSI has already turned in favor of the bears. Thus, the index could drop to 93.00 (psychological) and 92.80 (Oct. 12 low).

On the higher side, a move above 94.26 (10-day MA) would expose 94.72 (Oct. 26 high) and 95.15 (Nov. 7 high).

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