Dollar pain trade goes on

Christopher Vecchio, Currency Analyst at DailyFX, comments:


“‘The year of the US Dollar’ might be an appropriate summary for the consensus estimate on the street for which currency would be the top performer in 2014. Backed by the Federal Reserve’s plans to wind down its QE3 stimulus program, a rising interest rate environment was supposed to be the backbone of greenback strength. Yet the first several weeks of 2014 have proved everything other than these platitudes to be correct.


“It’s impossible to ignore the coincidence of US Dollar weakness with the sudden slump in top of the line US economic data. The US Dollar pain trade really began on January 10, when the market was stunned with a +74K (later revised to +75K) December NFP print. The US Treasury 10-year Note yield, hovering near 2.98%, plummeted into the mid-2.80s and never looked back. The decline in yields coincided with a break of the uptrend off of the April and October 2013 lows, and the UST 10YY dropped to near 2.580% within the past three weeks.


“The US Dollar hasn’t had it any easier as the return of rising US yields from their recent lows hasn’t done much to help. One instrument in particular is warning of further US Dollar weakness: Gold. Indeed, our Speculative Sentiment Index update this week has issued caution given extreme positioning in several US Dollar pairs, signalling further pain may be ahead.”

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