The USDOLLAR has retraced over the last week. The US 10-yr Treasury accompanied the greenback, dropping from a high of 3.2% to the current yield of 2.82%. However, we note that both instruments had been overbought on their weekly charts since mid-March (blue and green rectangles). These excesses placed a ceiling on both and needed to normalise. Participants likely took profits, and the resulting pullbacks have now taken the froth off the USDOLLAR and the US 10-yr Treasury. Given these are trading at more typical readings, the charting of higher troughs will not be surprising.
The Fed's contractionary monetary policy is just starting. June and July will deliver 50 bps in rate hikes, and notably, the market cannot ignore the Fed's balance sheet reduction. This tightening is likely to support the greenback as the dollar supply declines and impact interest rates as the economy comes to terms with less liquidity.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.