DXY Technical Analysis - Dollar Milkshake In The Near Future? | Macro, SLR, USD, TA (January 2022)

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In this video we will be going out for an afternoon of milkshakes on the DXY chart.

Both the dollar and us treasury yields seems to be in a bullish trend

The delta of yields can be a problem if gets too large and that would incentive a strong dollar.

The short end of the curve is going to be most important to watch as that’s where the fed will likely focus its taper to start.

So as of today, yields are rising at high deltas on the short end of the curve as the fed tapers and depository institutions can’t do anything to help due to their total leverage exposure thus providing a strong demand for dollars.

The supplemental leverage ratio exemptions are expired and credit is a lot tighter than it was in 2020

There are more stimulus talks with the Build Back Better plan which mean more deposits and reserves on the way in the near future.

More reserves means more leverage exposure for depository institutions which means less and less ability to absorb both an increase in deposits in the form of reserves and the ability to participate in the purchasing of treasuries.

This is going to continuing being a tail wind for yields and thus a tail wind to the dollar in the near future.

In my opinion this is going to break at some point soon and there are going to be policy adjustments that are unpredictable - something like the situation in march where they exempted reserves and treasuries from the SLR.

Something like this would bring a whole new regime for fixed income and foreign exchange thus I don’t feel comfortable supporting the idea of a strong dollar for long periods of time.

For the time being, call up the Mr. Brent Johnson the milk man cause I’m looking for a dollar milkshake BABY!

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Alright everybody, until next time, stay one, or a 1.9 trillion, moves ahead.

Have a great weekend!