Dollar Tone Improves

The US dollar was broadly higher last week. It seemed as if the inexorable rise in US interest rates may be beginning to give it some traction. The US 10-year yield made a marginal new four-year high, creeping closer to 3%, while the US premium over Germany surpassed 300 bp for the first time. 

The Dollar Index’s four-day advancing streak, which it will try to extend next week, is the longest in two months. It is important to recognize, however, that there has been no breakout yet. The Dollar Index remains in the broad 89.00-91.00 trading range. It did not make a new high for the month. That is to be found near 90.60. Although the technical indicators are not generating strong signals at the moment, the underlying tone is firm. The Dollar Index fell only one week in February and one week in March. So far, here in April, it has also appreciated in all but one week.  

After testing the upper end of the trading range (~$1.24) several times without success, the euro backed off. It slipped to a two-week low near $1.2250 ahead of the weekend. The rising short-term interest rate differential means that it is increasingly expensive to hold euros without offsetting appreciation. Still, the weekly loss of 0.35% is small beer, and the lower end of the range (~$1.22) remains intact. Participants may be patient even if the $1.22 area is frayed. The low from March 1, near $1.2150, may need to be taken out to signal a clean break. The technical impulse is not particularly robust, but there appears to be a slight downside bias.  

The euro returned to CHF1.20 last week for the first time since the SNB jettisoned the cap on the franc (floor for the euro). While the single currency poked through there, it was marginal and brief. A euro high may not be in place, but the technical indicators are stretched. News that North Korea announced an end to its ballistic missile tests and the closing of one of its missile sites might be greeted with fresh franc sales on risk off ideas. However, we see the North Korean announcement is largely show. It has not tested a missile since claiming to have successfully achieved the capability to hit the US heartland.