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Lower Interest Rates May Prove to be Headwind for US Dollar

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The capital market starting to trend once again. The 10-year note yield has risen rather swiftly in recent months, which has caused both the stock market and the US dollar to trade in a sideways movement. In each case, we believe it to be a distribution phase that will lead to lower prices in the months ahead. If we had a crystal ball, then we would simply note that the 10-year note yield risk-reward profile is setting up towards lower rates given the upside "head & shoulders" bottom target is on the verge of being achieved. This may not happen immediately, as a period of distribution may set it. But the fact of the matter is that lower interest rates will be fundamental headwind for the US dollar.

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Quite simply, the USD technical picture is one of breaking down. After a new highs was forged in early-July, sharp weakness has ensued, with the 180-day moving average "fulcrum point" having been violated once again. Now, this violation isn't yet material, but given rising bull market trendline support is on the verge of being violated as well - then the prospect for lower prices is growing quite rapidly. We would view a breakdown below the 80.55 previous low as sufficient to "call a high", and then look for a test of the April-July 2011 lows around the 73-level. If we are to trade individual currenices, then we would look to be long the Swiss Franc.

Good luck and good trading,
Richard

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