The Dollar Dropped Despite Higher Treasury Yields

Insights

• The dollar moved lower against most major currencies
• U.S. yields moved higher, with the 2-year breaking to 14-month highs
• Risk assets were mixed
• Commodity prices were also mixed

The dollar reversed lower despite higher Treasury yields despite a record high for consumer inflation. The Fed meets next week, and a 25-basis points rate hike is baked in. The question will be what the Fed says about the war and if the bank plans to meet by meeting to judge how the war impacts prices.

Inflation took center stage on Thursday. The U.S. Labor Department reported that the consumer price index increased 7.9% year over year, a fresh 40-year high. Food prices rose 1%, and food at home jumped 1.4%, both the fastest monthly gains since April 2020, in the early days of the Covid-19 pandemic.

Technical Analysis

The USD/CAD reversed lower. Support near the 10-day moving average that comes in near $1.2741. Resistance on the currency pair is seen near the March highs at 1.2901. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal.

The medium-term momentum is positive as the MACD but decelerating. The MACD histogram prints positively. The trajectory of the MACD histogram is flattening, which likely points to consolidation.