“Another Plank” Supporting The Dollar Has Been Removed

“Another Plank” Supporting The Dollar Has Been Removed

With the broad dollar sinking…


…and the euro hitting six week highs (well on its way to a YTD peak)…


…and a “dovish” Fed hike having triggered a rally in rates, it’s worth connecting the dots in terms of assessing the extent to which rate differentials still support the structurally strong USD thesis.

Make no mistake, this is a pretty important point, which is why we thought the following was worth presenting.

Via Bloomberg and Macro Man

Another plank supporting U.S. dollar strength has been removed, if only temporarily.

  • Since the election, 200 has been firmly grounded support in the Treasury-Bund spread, having held on several occasions. Not today, as the spread is currently 198 bps. The implication for EUR/USD is pretty clear.


  • The next technical level for the spread is 191 bps, the 61.8% retracement of the move since the election. If that goes, the risk is that the spread retrenches all the way back to 164 bps, presumably taking the euro with it.
  • Selling Bobls looks like the clearest bond trade out there at the moment. That probably implies more upside risk for the euro.

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