It has been an active open to FED week, featuring drone strikes in the Middle East and a trend reversal in U.S. Treasuries. The USD Index has been a surprise beneficiary of the action. Significant gains vs the EUR, Swiss franc, and pound Sterling have highlighted the session for the Greenback.
In today’s U.S. Treasury auction, short-term government debt took a surprise turn to the bull. The past four months have brought consistently falling yields amid an institutional flight to safe-haven assets. This morning’s auctions certainly lifted some eyebrows:
Event Actual Previous
3-Month Bill Auction 1.945% 1.920%
6-Month Bill Auction 1.870% 1.825%
Given Sunday’s drone attack on Aramco oil installations and the U.S. indices posting intraday losses, an uptick in yields is a bit counterintuitive. In addition, the USD Index is attracting some bids, with December futures rallying above the 98.000 handle.
USD Index Back Above 98.000
After a tough close to last week, December USD Index futures are back on the bull. Rates are trending north of 98.000, a positive sign for the Greenback to open FED week.
Here are two levels to watch for the rest of the session:
- Support(1): Daily SMA, 97.820
- Support(2): Bollinger MP, 97.600
Bottom Line: In the event the December USD Index pulls back from current levels, a late-day long may come into play. Until the closing bell, I will have buy orders queued up from just above the Daily SMA at 97.875. With an initial stop at 97.765, this trade produces 20 ticks on a slightly sub-1:1 risk vs reward management plan.