Top Story

If Rates Have Peaked Then The Dollar Likely Has Too

Post-Fed, the Doves are on parade, treasury yields have fallen and bets for a cut in 2019 have increased. Certainly not a bad day in the office if you’re bearish USD.

  • Bond markets are hinting rates may have peaked at the Fed’s 2.25-2.50% target range
  • A Fed pause could be positive for equities over the near-term
  • USD could face mounting pressure
  • USD/CHF teeters on the edge the of key support

Just yesterday we warned that the USD could face headwinds as we approach April, and that certainly seems to be more the case now. Only there is a real risk USD could remain under pressure for much longer, if bond markets are anything to go by. 

With the Fed’s target rate stuck at 2.5%, it’s worth noting that the 2-year treasury yield has fallen to just 2.4%, the 10-year is now 2.52% and both point lower. This is significant, as yields have shown a strong tendency to lead a shift in Fed policy. And, with potential for an inverted yield curve, we should seriously consider the potential for the Fed to cut rates further out. Remember, markets are forward looking, and they’re pricing in an increased probability for the Fed cut rates this year. Ultimately this could likely be bearish for USD whilst  traders remain defiantly long.

A Fed pause could be positive for stocks over the near-term (with potential for US markets to break to new high) and negative for bond yields (as money flows back into bonds). However, if the Fed do begin to cut this could be negative for stocks as it assumes the economy has derailed and earnings 

Going back to the US dollar, USD/CHF remains of interest around a bearish greenback theme. The Swissy has just endured its most bearish session this year, and now teeters on the edge of 0.9900 support. A clear break of this level brings the 0.9800 and 0.9718 lows into focus, although we’re hesitant to jump onto an extended move over the near-term.

USD/CHF has stalled near a structural low, is near its lower Keltner band and resides near the 200-day eMA.  And as we’re heading into the weekend, its plausible to expect profit taking, after 7 consecutive bearish days. Therefore, caution is warranted around current levels as to avoid entering an over-extended move. If prices are to rebound, we can use a Fibonacci retracement to seek areas of weakness (as there are no clear structural levels to play with above).

But further out, we see its potential to head for the 0.9716 lows and beyond given the shift sentiment post-Fed, and the broader technical landscape. A false break above February’s high was coupled with a bearish divergence on the MACD. Moreover, a MACD sell-signal occurred on the 14th March, the histogram points firmly lower (showing the averages are expanding with bearish momentum) and we’ve also on track for a weekly sell-signal on the MACD.  

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.