It is more or less bearish business as usual for the USD. Across the board the macro trends that began late last year remain firmly in place. The USD Index remains firmly gripped within a bear trend and there is little hint of any impending change to that trend. We place considerable emphasis on the behavior of emerging market currencies and emerging market bonds relative to US Treasuries to gain insight into the likely direction of the USD Index. For the time being at least emerging market currencies as a whole (depicted by the ETF CEW) are close to breaking to a new high against the USD(the South African Rand already has). This behavior is confirmed by the relative outperformance of emerging market bonds relative to the US 10 year. Emerging market bonds are still yielding about 9% (as per the yield on the SEI International Emerging Bond Fund SITEX) whereas the Yield of the US 10 year is about 3.3%. Whilst emerging market bonds will always (famous last words perhaps) trade at a premium to US Treasuries, the current premium (about 500 pts) is still excessive and suggests that emerging market bonds have more upside left and that emerging market currencies are likely to continue their assent against the USD over the coming weeks/months.
Keep watching the ETF CEW, its holds the key to understanding so many macro trends trading place in global financial markets.
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