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  • Markets run to the dollar in mixed risk sentiment while US yields continue to climb.
  • US dollar holds above the 200 EMA and newly created support.

The DXY started  the week firmly and within a whisker of milestone peaks against the euro and yen on Monday.

DXY scored a high of 92/96 in New York and has printed an Asian high on Tuesday of 92.9480 so far.  

US  economic strength and a vaccine rollout proceeding much more quickly than in Europe have sent investment flows into the US dollar and away from the euro which currently trades towards the daily lows of 1.1760.  

Additionally, risk-off flows on wall Street pertaining to the  news that circulated around the global banking sector.

Such as Credit Suisse and Nomura said they faced potential large losses after the  New York City-based Archegos Capital  defaulted on its margin call.  

At first sight, Archegos, which managed only its founder’s and trader’s money,  does not look to be another  Long Term Capital Management, a darling of Wall Street that collapsed in the late 1990s (a trading book so big and complicated that it required a bailout).

However, given  how deeply interconnected  the sector is,  the risk of contagion  may not  bode so well for risk appetite.  

In 2020, when the banking sector was hit hard  as the world responded to the covid pandemic and the US dollar funding markets came under stress and  the markets scrambled for US dollars.

”The Securities and Exchange Commission summoned the banks for hasty meetings on what triggered the forced sale of more than $20 billion of stocks linked to Hwang’s Archegos Capital Management, said people with knowledge of the matter who asked not to be named in discussing private conversations,” Bloomberg has reported.

”The calls also involved the Financial Industry Regulatory Authority, with officials quizzing brokerages about any impacts on their operations, potential credit risks and other threats, said one of the people.”

Meanwhile, the US treasury yields were higher  as investors awaited President Biden’s announcement of the $4tn infrastructure plan.

The 2-year government bond yields increased 1bp to 0.15%, 10-year government bond yields grew from 1.63% to 1.71%, testament to what is expected to be strong jobs reports later this week, strong  growth and inflation.  

In Tokyo, the ten-year yield is up 0.52%, breaking wall Street’s highs with 18 March highs of 1.7540% in focus.  

DXY technical analysis  

Meanwhile, from a technical standpoint, there is a bearish case to be made on the daily chart, with the price as overextended at it is at these levels.  

A correction to old resistance and the confluence with the 38.2% Fibonacci level could be in order, despite the fact that the index is holding above the 200 EMA and new support: