US Dollar Downtrend Persisting for One Major Reason

Talking Points:

– Developments in a news have all increased a seductiveness of US Treasuries, that have sent US yields acrobatics in new weeks.

– As summarized in a Aug 29 investigate note, as prolonged as US genuine yields are falling, a US Dollar’s seductiveness would be singular and both Gold and a Japanese Yen would continue to outperform.

Retail throng positioning has blown behind out to impassioned levels in USD-pairs once again.

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Having been out of a bureau for a past week on annual leave, it always piques my seductiveness to lapse to markets after an extended duration away. Unfortunately for a US Dollar, zero poignant has altered over a past 10 days: a can was kicked down a highway on a US debt limit; a ECB still hasn’t admonished a Euro’s rise; and ultimately, US Treasury yields have continued to press lower.

Developments around a Federal Reserve, miss of swell on mercantile remodel by a Trump administration, and towering tensions with North Korea have all increased a seductiveness of US Treasuries, that have sent US yields acrobatics in new weeks. As summarized in a August 29 investigate note, as prolonged as US genuine yields are falling, a US Dollar’s seductiveness would be singular and both Gold and a Japanese Yen would continue to outperform.

Falling US genuine yields means that a widespread between Treasury yields and acceleration rates are decreasing, dwindling a chastisement for holding a low agreeable asset. If Gold yields nothing, has an estimated cost of lift of -2.4%, and usually can lapse collateral appreciation, it would best matched to convene when US genuine yields fell.

As we resolved behind on Aug 29, a same stays loyal today: “This is a bad sourroundings for a US Dollar to convene in, and as prolonged as US genuine yields are dropping, Gold and a Japanese Yen can still outperform contra a US Dollar.” Technically, we’re still really most in a downtrend on a charts, and fundamentally, a greenback is still unmoored interjection to deteriorating fundamentals.

See a above video for technical considerations in a DXY Index, EUR/USD, GBP/USD, USD/JPY, AUD/USD, and Gold.

— Written by Christopher Vecchio, CFA, Senior Currency Strategist

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