U.S. Dollar Index:
The U.S. Dollar Index closed at 91.004 Friday, up 0.420 on the week and the highest weekly close in 10 weeks. The distribution of vaccines appears to be making slow but encouraging progress and the Labor Department reported the unemployment rate fell from 6.7% to 6.3% in January. The index has been in a long downtrend and hasn't traded above the 100-day average since May 27, pressured by the Federal Reserve's commitment to keep interest rates near zero in an effort to help an economy stifled by COVID-19. Given the gradual improvements in the economy and the recent upward turn in the weekly stochastic indicator, the dollar index's low of 89.21 on Jan. 6 is likely to stand as intermediate or possibly even long-term support. Prices need to close above resistance at 92.00 to confirm a long-awaited break in the downtrend.
Yield on 10-Year T-Note:
The yield on the U.S. 10-year Treasury Note increased from 1.093% last week to 1.170% Friday, the highest the rate has been since March of 2020, a time when the country was in the grip of the initial pandemic scare. The 10-year yield hit a low of 0.40% on March 9, traded roughly sideways for several months and then found support at 0.50% in early August. Since August, the yield has been creeping gradually higher, showing signs of a gradually improving economy, even while the Fed remains committed to keeping the federal funds rate target near zero. This upward trend has potential to keep going higher and is one of the reasons the U.S. Dollar Index is finding support.
April gold was down $37.30 last week, ending at $1,813.00 on Friday, its lowest weekly close in two months. April gold prices benefitted from pandemic worries in early 2020 and from concerns about the heavy load of government debt taken on to help keep the economy afloat. Prices peaked at the all-time high of $2,107.60 on Aug. 7 and have slowly chopped lower since as fears about the economy are slowing subsiding. The uptrend was officially broken on Nov. 9 when prices broke below a three-month low. Traders briefly tried to revive the rally at the start of 2021, but the failed attempt lasted less than a week. April prices remain below the 100-day average at $1,888 and are likely to keep sliding lower as the economy continues to show signs of improvement.
Regarding U.S. grain prices, row-crop supplies are so low that gradual increases in the U.S. Dollar Index are not likely to have much bearish influence. U.S. wheat prices, however, already struggle with international competition and are most vulnerable to being adversely affected by a higher dollar.
Comments above are for educational purposes and are not meant to be specific trade recommendations. The buying and selling of commodities or commodity futures involves substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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