USD - Drop It Like It's HOT

1) USD – Friday brought with it a smashdown for the US Dollar.  Why?  Who knows.  And I don’t care much for the “why.”  The fact is that the US Dollar Index failed at a test of TREND last week and simply confirmed its current bearishness (downward bias).  Importantly, since lots of pundits are talking about the move in the Yen, if you were to look at a longer-term view of the USD/JPY (Yen) Pair, you’d see some interesting correlations.  The USD/JPY pair “topping out” has historically been a time when US markets really started to pick up.  The week of OCT 17, 2022 (bottom of that bear market in stocks); the beginning of JUL 2024; the beginning of JAN 2025; and now last week.  All of these times coincided with good times to have been an investor in equities.  Will this time be different?  I don’t know.  But those are three words that tend to get investors on the wrong side of an investment.  Predictably, the financial media will treat this like a crisis.  But when reliable returns disappear from classically safe dollar yield products like U.S. Treasuries, capital doesn't sit idle.  It tends to move further out along the risk curve.  The last time the dollar fell this hard was 2017.  A weakening dollar isn't a headwind for risk assets.

2) CREDIT SPREADS – All the world seems to be hyper-focused on the next “gov’t shutdown” or “US attacking Iran” narratives.  More end-of-the-world events, I guess.  Well, I’ll just listen to the data.  If there was something particularly concerning afoot, you would see it in the credit market through spreads (this is where the really smart money sits).  And amid all the concerns earlier this week, Investment Grade Credit Spreads shrugged their shoulders and barely budged, remaining very low (good news).

3) RATES – Longer-term yields (10, 20, 30 YR) remain in an immediate-term bullish (upward) bias and are testing their respective TREND support levels.  Will they break?  So far, the data says no.  That can change if the signal creates a lower low.  What’s the signal?  It’s the daily rate of change of price, volume, and volatility of a respective yield.  And right now, those signals are not yet breaking down.  But let’s not forget the longer-term picture in rates either.  The week of OCT 16, 2023, rates topped out at 4.92% on the 10YR Yield.  They put in a lower high the week of JAN 6, 2025, at 4.76%.  Technically, we could see rates move all the way back up to 4.6% and STILL be in a longer-term bearish (downward) bias.  No panic in the bond market with the MOVE Index at 56 after failing at its TREND resistance last week.