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US Dollar rises on the heels of a nuclear proliferation agreement

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US Dollar rises on the heels of a nuclear proliferation agreement

The dollar continued its rapid rise on Monday notching up solid gains on the heels of an agreement between the UN Security Council and Iran on nuclear proliferation. The yield differential moved in favor of the greenback, moving close to the highest levels for the year.

Investor’s sentiment as pinballed back and forth from Yellen’s confirmation hearing, where many took away a ultra-dovish signal, to the FOMC minutes that many read as bringing forward Fed tapering to possibly next month. Yet the key officials who included Bernanke and Yellen have made it clear that the decision to taper requires more economic progress. While third quarter US GDP appears set to be revised up to a little more than 3%, the composition, especially the inventory build, may detract from fourth quarter results growth. Business have stocked up on inventories which has driven GDP to above trend growth. The regional Fed surveys for November also point to some softening of the economy. The Philly Fed was well under expectations.

The yield differential for the US and Japan in the 10-year space moved to the highest levels seen in the past two months. Generally the currency pair tracks the yield differential which helps generate the forward rate for the USD/JPY.

The weekly chart of the USDJPY looks robust and is poised to test the 2013 highs near 103.75. Recently the currency pair moved through downward sloping trend line resistance near 101. Momentum on the currency pair is strong as the MACD (moving average convergence divergence) index generated a buy signal where the weekly spread (the 12-week moving average minus the 26-week moving average) crossed below the 9-week moving average of the spread. The RSI is printing near 62, which is on the upper end of the neutral range.

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