10 Year Yields, US Dollar Index, USD/CAD and USD/MXN All in Focus for Fed Day

US 10YR Technical Analysis

We do have the Federal Reserve interest rate decision later in the session and that of course is the first thing that will capture anybody’s attention. It is not expected to be a change but what people will start to do is focus on the idea of whether or not the Federal Reserve sounds hawkish or dovish. They are expected to cut twice this year. Right now though, the data is a bit mixed and if he uses the phrase data dependent during the press conference, we could see some volatility.

Right now one of the most important charts to me is the 10 year yield in the United States. It has been stuck between 4.20% and 4.30% over the last several sessions. If it starts to scream higher, that could cause problems with the US dollar initially only to make it attractive. If we break down below 4.20%, then we could be looking at 4.10%. I think we are at a pivot point.

DXY Technical Analysis

The US dollar index has of course captured the attention of everybody around the world because every couple of years we get this narrative going that the US dollar is going to fall apart, no longer be the world’s reserve currency and yadda yadda yadda. Without going into the plumbing of the Eurodollar system and how debt around the world works, I think one thing you can do is just look at a chart.

Going back to 2019, we are maybe slightly below midway of the overall range. Even if we were to break down here, there is a massive floor going back to 2021 at 90, which I think does hold. Controlled demolition is actually the game of the US dollar.

USD/CAD Technical Analysis

During the session I will be looking at the US dollar against the Canadian dollar and the main reason for that is that both central banks are active. This is going to be a situation of he said, she said, and where the tone ends the day probably determines where this pair goes.

I would be very interested in buying this if perhaps Jerome Powell is a little hesitant to sound dovish or the Bank of Canada suggests that they are nowhere near raising rates. You could see a move to 1.3750 before it is all said and done. If we break down from here, 1.34 would possibly be the initial target where we had a double bottom quite a while ago.

USD/MXN Technical Analysis

Finally, let’s take a look at one of my favorite carry trades, the US dollar against the Mexican peso. It is in freefall and I think no matter what happens this falls. The interest rate differential continues to be wide enough to drive a truck through in favor of Mexico.

If the US economy is resilient, the Mexican economy is as well. The US is the number 1 trading partner as far as exports coming into the country. If we get anywhere near 17.5 Mexican pesos and show any signs of weakness, I will more likely than not be shorting, unless, of course, we break above 18, then I would throw the trade out the window.

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