From the desk of Steven Strazza @Sstrazza and Ian Culley @IanCulley
The US Dollar Index $DXY is pressing to new highs, disregarding what many think it should be doing based on historic intermarket relationships.
Considering the bullish developments and new highs from risk assets, the strength from the US dollar continues to be a head-scratcher.
But will the breakout in the DXY hold, or will it roll over and confirm the signals coming from bonds, stocks, and commodities?
When we broke down the US Dollar Index last month, we pointed out that its strength was rather narrow in terms of how it was performing relative to most individual currencies. Long story short, the recent rally in DXY has been fueled primarily by its two largest components — the euro and the yen. These two currencies make up more than 70% of the DXY weighting, and the fact that they are at new 52-week lows explains why the index is at new highs.
But we’re still not seeing the same kind of strength when we look at most other dollar crosses.
As we continue to make sense of the dollar rally, let’s take a look at two USD crosses that will provide valuable information in the coming weeks.