U.S. Dollar
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U.S. Dollar Experiencing Choppy Trade into Year-end

By:Christopher Vecchio - CFA

The dollar index (DXY) is down 0.98% for the month so far

  • U.S. Treasury yields continue to pull back, hindering the U.S. dollar.
  • However, sharp declines in inflation rates in the Eurozone and the U.K. are holding back the British pound (/6BH4) and the euro (/6EH4).
  • In a world of central banks ending their rate hike cycles, the Japanese yen (/6JH4) is better positioned.

Fig. 1: Year-to-date price percent change chart for /6B, /6E, /6J

The retracement in U.S. Treasury yields may be welcomed news for equity markets and precious metals, but it’s claimed one victim along the way: the U.S. dollar.

Rising Fed rate-cut odds and deteriorating interest rate differentials have hurt the greenback since late-October, knocking it down by nearly 1% in December.

Yet the situation could be worse for the U.S. dollar. Neither the British pound (/6BH4) nor the euro (/6EH4) have made much progress in recent weeks, thanks in part to rising rate cut odds for their own central banks. Eurozone inflation rates are lower than those in the U.S. And the November U.K. inflation report released early this morning showed a steep dip relative to expectations.

As the dust settles around shifting rate cut odds, one currency has risen above all others since the start of November, and it’s the Japanese yen (/6JH4). While the Bank of Japan failed to deliver on rumors of it ending its extraordinary loose policy efforts, the continued decline in global bond yields bodes well for the Yen as the calendar looks to 2024.

/6B British pound technical analysis: daily chart (September 2022 to October 2023)


The British pound (/6BH4) remains in an uptrend that began in October but has not made any meaningful progress in almost a month.

Momentum is starting to roll over. /6BH4 is below its daily 5-day exponential moving average (EMA) but remains above its daily 13- and 21-day EMAs. Slow stochastics has issued a negative divergence and has begun to trend lower. Meanwhile, moving average convergence divergence (MACD) is trending lower (albeit above its signal line).

For now, /6BH4 is rangebound, and a move above 1.2800 or below 1.2500 is needed before the next directional move can be ascertained. Should the Bank of England rate-cut odds continue to rise, the likely move would be lower.

/6E Euro technical analysis: daily chart (September 2022 to October 2023)


There are two possible interpretations of euro (/6EH4) price action in the near-term.

On one hand, a symmetrical triangle has been forming since July (blue lines on chart above), whereby the euro is close to a bullish breakout above the November high at 1.1070. On the other hand, an ascending triangle that began forming in late-August (yellow lines on chart above) may be the primary thrust. This too, calls for a bullish resolution.

The caveat: until 1.1070 is cleared, /6EH4 remains in a consolidative state, whereby a swing lower can’t be ruled out. More time is needed before the picture becomes clearer.

/6J Japanese yen technical analysis: daily chart (November 2022 to September 2023)


The Japanese yen (/6JH4) has the easiest technical interpretation among the three largest components of the DXY Index.

Plainly, it has broken the downtrend from the March and July swing highs, and a new uptrend as formed against multiple swing lows in November and December. Amid a world of declining interest rates and rising rate cut odds, /6JH4 stands to outperform its peers both in the near-term and throughout 2024.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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