USD Index Components Diverge — Here’s The Trade

Talking Points

  • EUR/USD driving force behind USDOLLAR Index breakdown.
  • AUD/USD yet to break resistance, USD/JPY yet to break support.

Depending on your USD bias, there are some pairs better suited for bulls versus bears. We can surmise this by breaking down the components of the US DOLLAR Index, which reveals that the EUR/USD rally is the main catalyst for the recent turn lower in the US DOLLAR Index; whereas AUD and JPY have made little to no progress against the USD.

The Euro may be in a world of its own right now, after the ECB more or less granted clearance for yields to rise in the Euro-Zone again: the ECB said that the rise of yields (and the appearance of volatility) should be expected as HICP inflation rebounds. With inflation outperforming expectations in the short-run, there appears to be little motivation within the ECB to meaningfully expand its QE program ahead of the summer months.

See the above video for technical considerations in EUR/USD, EUR/AUD, USD/JPY, and AUD/USD.

— Written by Christopher Vecchio, Currency Strategist.

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