Bond Yields Pressuring the Dollar, Likely to Hit 78 on Index

by on May 6, 2014 4:53 pm BST

Investors are loosing faith with equities being rejected near all-time highs. Bonds have seen demand, and the subsequently lower yields are putting additional pressure on the US dollar. As expected, the dollar is moving lower ahead of Federal Reserve chair Janet Yellen’s testimony in front of Congress tomorrow. Speculation on prolonged near-zero interest rates has vacuumed the air out of dollar bullishness, which took a hit after last month’s FOMC minutes.

Robert Sinche, global strategist at Pierpoint Securities LLC, said “you look across the board and it is, I think, a dollar-related move and primarily driven by lower US rates.” US 10-year treasury futures have budded up against some resistance, but the yields have held lower at 2.5987 percent. The dollar index has seen some support near 79, but current sentiment and price action could push it lower to 78.

The three-year weekly chart is showing increasingly bearish signs for dollar futures. From the low-to-high, price action is breaking through the 50 percent Fibonacci level after being rejected from the 200 EMA (80.55/65 a confirmed supply zone). Dollar futures will have minor support at 70 to 79.10, but a close below will signal a further decline to 78.75 and then lower. The next level of significant support will lie at 78.

The RSI stands at 40, and it still has a while to go before becoming technically oversold. Nevertheless, the ADX on the weekly chart hsd been gradually ticking upwards since may. According to this chart’s time frame, the prolonged extension of the ADX has supported sizable movements in a given direction. The bearish weekly price action is supported by the increasing divergence of the +/- DMI.

WK Chart of DX

WK Chart of DX