US Dollar rises on position squaring in year-end dealings - BBH

Marc Chandler, Global Head of Currency Strategy at Brown Brothers Harriman, notes that the recent rise in the US Dollar last week appears to be a function of position squaring in year-end dealings.

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The US dollar rose against all the major currencies last week.  It seemed primarily a function of position squaring in year-end dealings.  Elevated expectations of US tax reform, some renewed talk of an infrastructure initiative, and data that gave no reason to doubt a Fed hike next week, helped bolster the dollar, after the downside momentum eased the prior week.  

The Dollar Index rose every day last week, for the first time since February.  The 1.1% weekly advance was the most in six weeks.  The gains took the Dollar Index to the 61.8% retracement objective of the November decline, which is found near 94.15.  The five-day moving average moved above the 20-day average.   The MACDs and Slow Stochastics are trending higher.  A move below the 93.50 area would suggest a consolidative phase, while a move above 94.20 would suggest a return to the four-month highs set in late-October near 95.15. 

The euro fell through the November uptrend line early last week and continued to trend lower.  It recorded six sessions without an advance, the longest such since November 2016.  The euro approached the 61.8% retracement objective of the November gains (~$1.1710), which also corresponds to the low from late last month. The technical indicators are moving lower.  The $1.1700 area is important support.  A break could spur a test on even more significant support in the $1.1550-$1.1600 band.  The US two-year premium over Germany increased by seven basis points to 2.54%, while the 10-year premium widened a couple basis points.  At 2.075, it is the widest in eight months.  

The US 10-year premium over Japan was flat over the course of last week at 2.32%.   However, the dollar rose four of the five sessions and seven of the last nine sessions.  The dollar tested the 61.8% retracement of the November decline (~JPY113.25) a couple of time, but made it through there ahead of the weekend.  The next target is in the JPY113.80-JPY114.00 area.  The five-day average crossed above the 20-day average earlier in the week, and the technical indicators are moving higher.  Initial supported is pegged at JPY113.00.