Having recovered from the low of 94.36 on Friday, the dollar index (DXY) is trading flatlined in Asia around 94.55 levels.
The index struggled to gain altitude beyond 95.00 early last week, finally making way for a decline on Thursday and Friday. Greenback's losses could be attributed to the yield curve flattening (i.e. long duration yields drop more than short duration yields).
The difference or the spread between the US 10-year yield and the 2-year yield fell to 67.8 basis points on Nov. 7; the lowest level since Oct. 31, 2007. The narrowing spread (flatter yield curve) indicates concerns about low inflation and low prospects of faster Fed policy tightening. Thus, USD weakens on yield curve flattening and vice versa.
The unwinding of the yield curve flattening trades on Friday lifted the spread to 74 basis points on Friday and helped the DXY recovery slightly from the low of 94.36. Given the light data calendar, the DXY remains at the mercy of the changes in the treasury yield curve and US tax reform news.
Dollar index outlook
Reuters Buzz takes note of the key technical levels on the DXY-
- 94.26, prior Oct high & rising 20 DMA, now @ 94.30 a base offshore
- Pivotal support - close below 94.25 would target 93.56, 38.2% Sep/Oct rise
- Friday's 94.65 high & 04.63.69 % & 10 DMAs initial resistance
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