US dollar index (DXY) - Mean reversion working a dream
The fact we are seeing US 2yr Treasury yields confined to a 4.28% to 3.60% range is a major factor behind the DXY trading in such a tight consolidation. On the daily timeframe we see the Bollinger Bands (BB) compress to the tightest levels since Jan 22, with the RSI (9) sitting mid-range – subsequently mean reversion is the correct strategy here and we see clients adopting this quite successfully at present.
EURUSD (the EUR holds a 57% weight in the USD index) is starting to break down, and should we start to see trending conditions then one suspects the DXY should push higher and potentially out of the range. The longer we see this BB compression the more likely we are to see an impulsive and powerful break out – I favour the upside, but the US debt ceiling is the obvious risk to that call.
EURUSD (the EUR holds a 57% weight in the USD index) is starting to break down, and should we start to see trending conditions then one suspects the DXY should push higher and potentially out of the range. The longer we see this BB compression the more likely we are to see an impulsive and powerful break out – I favour the upside, but the US debt ceiling is the obvious risk to that call.
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