marctomarket.com / by Marc Chandler / NOVEMBER 19, 2016
The US dollar has recorded its best two-week performance since Reagan was President. There has been a sea change. Although the low in global yields took place before the US election, and deflation forces looked to have been largely defeated (with a few exceptions, including Japan), more market participants recognize the likelihood that the three-decade decline in bond yields may be over.
At the very least, the promise of fiscal stimulus for a U.S. economy that is already growing near-trend, while core PCE deflator and wage growth gradually increasing, may be confirming the biggest change in the investment climate since the financial crisis. The dramatic adjustment seen in interest rate markets and the dollar reflects the repricing of assets under a new paradigm. Of course, two weeks after the election, details do not exist yet, and the Republican President-elect has bolder ideas that part of the Republican Party that may lead the legislative branch. However, the direction is clear.
The US Dollar Index has risen for ten consecutive sessions. In this two-week period, it has gained about 4.25% to reach its best level since 2003. It has only fallen in two of the first seven weeks here in Q4. On October 20, when the 50-day moving average moved above the 200-day moving average (Golden Cross), Dollar Index closed near 98.30. It pushed a little past 101.30 last week. The technicals are stretched. The RSI is at its highest in more than 18 months, but there no bearish divergences.
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