The DXY has been loitering around 96.50 as the Fed's third mandate (equities) is unable to gain any steam - SPX continuing to get sucked closer to the TACVOL range bottom 2614.97. What is TACVOL And How To Use it.
It is quite clear that the market's view of Fed policy is weighing on the dollar along with euro-dollar spreads. This has a particular consequence - at least near term - for the dollar-yen.
We can look at the 2018/19 spread as we close out this year representing the fact that three Fed officials are warning about potential breaks within the growth outlook.
The 2019/20 spread is suggesting that the Fed will loosen its grip on its hawkish stance. Although, conditions are still getting tighter and will be a key focus for next week's Parallax Weekly.
Euro-dollar 18/19 (blue); Euro-dollar 19/20 (yellow)
Traditionally, US/Japanese rate differentials have been a great marker for playing this pair, but it is clear that market sentiment is playing the leading roll.
Here, we have the USDJPY and 18/19 euro-dollar spread which only began holding-hands since stocks began to drop. Sentiment was not wavered during the February decline.
Euro-dollar 18/19 (blue); USDJPY (yellow)
Then, we look at the 19/20 spread, and there is no real correlation found currently. The market's view is very myopic.
Euro-dollar 19/20 (blue); USDJPY (yellow)
Lets be honest with each other, as much as the market is pricing in a dovish Fed, the U.S. 2-year yield is down only 16 bps and bounced near-term oversold. TACVOL near-term range 2.98/2.77.
USDJPY (top); Euro-dollar 18/19 (yellow); SPX (red)
The SPX is down 1.28 percent year-to-date; and I think the deflationary output of the Fed's balance sheet reduction will be a tailwind for the dollar.
USDJPY near-term range 114.25/111.52
Intermediate range 114.44/108.30
In regards to the Dow Jones US Dollar Index, there has been notable pauses in the deflationary output in the top seven Asian Exporter FX basket.
Dow Jones US Dollar (green); Asian Exporter Basket (orange)
Is the market suggesting the trouble in Asia is over?