Dollar Index Is Moving in Sync With Swaps and Has a New Yearly High in Sight

  • Rally is supported by moves in interest rates and gold
  • Momentum studies are working in favor of the U.S. dollar

The Dollar Index is poised to complete a fourth successive week of gains, and technical patterns as well as its correlation with interest rates confirm it is now within shouting distance of a new high for the year.

The index has advanced more than 2 percent in the past month, taking it past its mid-February high and the 55-day moving average. The U.S. 10-year swap rate -- whose movements the dollar has followed in lock-step -- has broken out of a consolidation pattern, which could lend support to the currency.

In focus for investors now is the Dollar Index’s high for the year at 103.82. Momentum studies such as the Elder Impulse System, which identifies bullish and bearish phases in any market by combining momentum and moving-average indicators.

Swap Correlation

The 10-year annual dollar swap rate has broken out of a consolidation pattern that formed in December. This could see the rate extend to 2.56 percent, its high of 2015. Any ascent in the rate should underpin the Dollar Index given a near-perfect positive weekly correlation.

Gold Trend

Gold, which has traditionally had an inverse correlation with the Dollar Index, is sending bullish technical confirmations of the greenback’s strength. Spot gold has broken below an uptrend that began in December, which may presage further pullback for the metal.

  • Sejul Gokal is a technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
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