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USD Price Outlook: US Dollar Slides as Treasury Yields Retreat

US DOLLAR OUTLOOK: USD PRICE ACTION PUSHES LOWER WITH TREASURY YIELDS

  • Sustained US Dollar selling pressure pushes the DXY Index to a critical technical support zone
  • EUR/USD and GBP/USD price action flirting with session highs as USD/JPY extends lower
  • Treasury yields retreating on the back of speculation that the FOMC might need to do more
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USD price action is trading notably weaker on Tuesday as measured by the US Dollar Index. The DXY, a basket of major currency pairs heavily weighted toward EUR/USD, GBP/USD and USD/JPY, is down about 0.3% following the New York opening bell. US Dollar selling pressure has mounted over the last few trading sessions and caused the DXY Index to slide back toward a critical technical support level near the 92.00-price level. Breaching this important area of buoyancy has potential to open up the door to additional downside.

Change in Longs Shorts OI
Daily6%4%5%
Weekly22%3%8%

DXY INDEX – US DOLLAR PRICE CHART: DAILY TIME FRAME (19 JUL TO 17 NOV 2020)

DXY Index Price Chart US Dollar Forecast Treasury Yields Overlaid

Chart by @RichDvorakFX created using TradingView

One fundamental driver helping keep the broader US Dollar afloat likely includes rising Treasury yields. That said, the ten-year US Treasury yield has declined by about 12-basis points to 0.87% after failing to take out the psychologically-significant 1.00% level last week. In light of surging COVID-19 cases and escalating restrictions on activity, lingering demand for safe-haven assets such as US Treasuries could explain the downward pressure on Treasury yields.

Further, the Federal Reserve has hinted at the possibility of more dovish measures, which poses a headwind to USD price action. Atlanta Fed President Raphael Bostic stated that the FOMC might need to tweak its asset purchase program and provide more monetary support to the economy after worse-than-expected US retail sales data crossed market wires this morning.

This could keep a lid on long-term US Treasury yields and encourage USD bears to maintain selling pressure. Nevertheless, with risk aversion seemingly creeping back into the market, there is potential that the US Dollar finds a bid due to its posturing as a top safe-haven currency. To that end, the US Dollar is currently trading higher relative to the sentiment-linked Australian Dollar.

— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight