Another Rotation into US Assets?
The recent strength of the US Dollar Index and weaknesses in foreign currencies may have been the result of macroeconomic and geopolitical uncertainties (i.e., coronavirus). The stronger US Dollar may also reflect global investors favoring a stronger US economy. As the US Dollar appreciates in value this would force global money to seek out US denominated assets (i.e., US stocks, US Treasuries, US real estate, etc.). Key US indexes including SPX, INDU, COMPQ, NDX, and WLSH have recently recorded new all-time highs. The ability to set new all-time highs suggest the basis global investors are sponsoring US stocks and specifically large-cap US stocks.
The following are near-term technical outlooks of key currencies and the10-year US Treasury yields:
US Dollar Index (USD)
US Dollar Index (USD) has broken out above key near-term resistances corresponding to its 4-month downtrend (97.75 - 1/28/20) and above its 61.8% retracement (98.05) from the Oct-Dec 2019 decline. These technical breakouts support the basis for a rally to 98.5-98.70 (Aug/Nov 2019 highs - short-term), and above this to 99.31-99.33 (Sep/Oct 2019 highs - near-term), and then to 100-100.5 (top of 1-year uptrend channel - medium-term). Key initial support rises to 97.0-97.5 (50-day ma, 200-day ma and the bottom of its 1-year uptrend channel), and below this to 95.50-96 (bottom of the 4-month downtrend channel, Jun 2019 uptrend, and Dec 2019 lows).
Euro/US Dollar (EURUSD)
A 1-year downtrend channel remains intact between 1.08 and 1.12-1.1255. The recent failure to breakout above the top of its channel earlier in the year as well as a potential 4-month head/shoulders top warns of further volatility. A convincing breakdown below Dec 2019 lows (1.0981) signals the next decline to 1.0879 (Oct 2019 lows), and below this to 1.067-1.08 (bottom of the 1-year downtrend channel and the projected breakdown target).
Japanese Yen/US Dollar (JPYUSD)
JPYUSD continues with an intermediate-term technical basing effort over the past 2-3 years between 0.879-0.8965 and 0.9471-0.9563. However, on a near-term basis, JPYUSD retains its 6-mo downtrend channel between 0.9050-0.9071 and 0.922-0.928. A recent death cross sell signal (Dec 2019) warns of another decline to 0.9050-0.9071. Violation here signals a deeper decline to 0.8965 (Dec 2016 uptrend), and below this to 0.8730-0.879 (2018 lows and 2017 uptrend).
10-year US Treasury yields (TNX)
TNX has rallied from its key support at 1.43-1.51% (Sep/Oct 2019 and Jan/Feb 2020 lows). The technical oversold rally is now approaching short-term resistance at 1.67-1.69% coinciding with the 1/27/20 breakdown. Above this can extend the rally toward 1.78-1.79% (Nov 2019 downtrend and 50-day ma), and above this to key resistance at 1.90-1.97% (200-day ma and Sep/Nov/Dec 2019 highs). A breakout above 1.97% confirms the start of an intermediate-term move toward 2.12-2.17% (38.2% retracement from 2018-2019 decline and mid-Jun/Jul 2019 highs), 2.34-2.36% (50% retracement), and then 2.55-2.61% (61.8% retracement). On the downside, a convincing decline below 1.43% hints of a retest of the 2012/2016 historical reaction lows of 1.34-1.39%.