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Dollar Gains Despite Softening Yields

David Becker
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Dollar Gains Despite Softening Yields

The dollar gained traction on Monday as tensions in Ukraine are starting to escalate. Military forces sympathetic to Russia, have taken over a couple of cities in the eastern part of Ukraine and have incited unrest in more. The position and weapons of those forces is leading NATO to conclude that Putin is seeking the full occupation of Ukraine, regardless of his real interest.

Despite yields on the US 10-year moving to their cyclical lows, investors have more interest in a safe haven then earnings yield. The yield on 10-year US Treasuries recorded their biggest decline in a month and US 30-year yields fell to their lowest level since last July. This comes as inflation actually ticked up at the wholesale levels, as reflected by a stronger than expected PPI report that increased 0.5% month over month. Looking forward, investors will need to absorb, retail sales, which are recovering after a soft start to the year. Industrial output also likely strengthened. Housing starts which are expected to jump back after some weather induced weakness.

Separately, before the weekend Putin’s letter to European officials warning that Ukraine’s failure to pay for its oil and gas risks the potential for cut-offs and pre-payment requirements for further supplies. This got Europe’s attention which could only escalate the current tension.

The EURUSD dropped after testing the top end of the current range and is forming a wedge pattern that has prices encapsulated between 1.37 and 1.3950. Short term support is seen near the 10-day moving average at 1.3795. Target resistance at the bottom end of the range is seen near 1.3720.

Momentum is flat as the MACD prints near the zero index level, after moving into positive territory last week. The RSI (relative strength index) has moved lower with price action reflecting accelerating negative momentum while printing near 53, which is in the middle of the neutral range.
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