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There is a "death cross" on the daily chart of the US dollar. Let's see what analysts say.

A closely watched indicator of the U.S. dollar's performance against other major currencies showed a "death cross" on the daily chart on Friday (Jan. 12) - an ominous technical development that is often seen as a trend. Confirmation of negative changes.

The Intercontinental Exchange (ICE) U.S. Dollar Index DXY, which tracks the U.S. dollar against a basket of six major currencies, was trading around 102.16 in early U.S. trading on Friday, down 0.1% on the day, but has risen by about 0.8% since the beginning of the new year. The index fell sharply in December.

This price action brought the index's 50-day moving average close to or below its 200-day moving average near 103.40, triggering a death cross (see chart below).

While death crosses sound bearish, currency analysts question whether they provide much of a signal, preferring instead to confirm a downward trend that has already begun. The U.S. dollar index hit the so-called golden cross at the end of September last year, when the 50-day moving average rose above the 200-day moving average, which is considered a positive indicator.

Data going back to 1985 shows that death crosses do tend to see the index decline in the subsequent 1-month, 3-month and 6-month periods. The U.S. dollar index fell 1.2% over the next month, 1% over the next three months and 0.4% over the six months, according to Dow Jones Market Data. The probability of decline in 1 month and 3 months is 60%, and the probability of decline in 6 months is 52%.

Brad Bechtel, global head of foreign exchange at Jefferies, said in a note: "In my opinion, the death cross is generally a relatively meaningless indicator because I don't think its predictive power has any value, but you You may hear about it in the media."

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a note that the death cross is a lagging indicator and "does not necessarily mean that the dollar will not rebound." "

On the contrary . "I think the Fed's dovish expectations have been much ahead of schedule since late last year and the dollar has some room for a positive correction," she said.

The dollar fell sharply in December as investors expected the Federal Reserve to cut interest rates by about 25 basis points in 2024.

The market reassessed the differences between the monetary policies of the United States and Japan, and the weakening trend of the yen intensified

Zhitong Finance APP has learned that the yen's decline looks set to intensify in the coming weeks as traders recalibrate their expectations for U.S. and Japanese monetary policy.

A key options-based short-term positioning indicator showed traders were the least bullish on the yen since August, with speculative accounts from Japan to the United States selling the yen on Thursday. However, there is still room for the yen to weaken further, with technical indicators showing that a rebound late last month pushed the yen into overbought territory.

It all comes down to the diverging trends in Japanese and U.S. monetary policies. The possibility of the Bank of Japan exiting negative interest rates as early as January now seems unlikely, given that Japan has recently suffered a severe earthquake and the government is mobilizing aid. In the United States, expectations for a rate cut by the Federal Reserve are easing in light of solid employment data, causing the 10-year Treasury yield to exceed 4%. This has helped the U.S. dollar outperform other major currencies, while the Japanese yen has lagged.

"The rise in USD/JPY has more to do with the pickup in U.S. yields than Japan-specific reasons," said Aroop Chatterjee, macro strategist at Wells Fargo in New York. "The market may have priced in too much of a Fed rate cut too quickly," he added.

It is understood that when market conditions change, such as changes in the direction of interest rates or expected adjustments in monetary policy, investors and traders will quickly adjust or close their trading positions to adapt to the new conditions, resulting in a surge in trading activity. CME futures trading volume on Wednesday reached its highest level since Dec. 19. Meanwhile, yen options activity on Thursday was the highest since Dec. 14, according to data collected by the Depository Trust & Clearing Corporation.

The yen fell as much as 1.1% against the dollar on Thursday, falling to its lowest level in more than two weeks. The yen has fallen more than 2% this year.

The yen's underperformance in currency markets is a familiar story. Analysts ended each of the past two years bullish on the yen, but that optimism faded as it became clear that bond markets were overheated. In 2022, a dramatic shift in Bank of Japan policy brought new calls for yen strength; in 2023, bullish bets on the yen increased in anticipation of Fed policy easing.

Alan Ruskin, macro strategist at Deutsche Bank, said: "It feels like everything is repeating itself, and the trading market in early 2024 will be mainly affected by whether the U.S. bond market bulls were correct in late 2023, or whether the market overreacted."