Dollar correction over? - BBH

In analysing the dollar, analysts at Brown Brothers Harriman explained that the correction in the capital markets began shortly after the Federal Reserve hiked rates on December 14.  

Key Quotes:

"The correction or consolidative phase follows an otherwise strong trending quarter, where moves accelerated after the unexpected victory by Trump. Last week we still anticipated the correction could persist even after the January 4 US jobs report showed more earnings growth than expected. However, now after the additional losses, the dollar appears ready to turn. 

Interest rates remain integral to our dollar narrative.  It is not coincidental that the dollar's downside move coincided with a pullback in yields and a narrowing of the US premium.  Interest rates may be the place to begin our review of the technical outlook.   

The 10-year yield fell to nearly 2.30% on January 12, new lows since the end of November, before recovering to close at new session highs of 2.36%.  Before the weekend, and despite if anything softer PPI and disappointing retail sales figures, the yield rose another six basis point.  The March note futures stalled at 125-10.  It tried separate sessions sine January 6.  After failing for the third time before the weekend, a sell-off ensured that brought the contract toward the week's low of 124-07, which is also a 38.2% retracement of the gains since December 15.  The 50% retracement is found at 123-28, and the 61.8% retracement is at 123-17.   

The two-year yield peaked on December 15 at 1.30%.  It pulled back to near 16 bp through January 12, when, like the 10-year note, the yield recovered and saw follow through gains ahead of the weekend. After five closes below the 20-day moving average, the two yield closed above it (~1.21% )before the weekend. The technical tone of the March two-year note futures contract is deteriorating, which is also consistent with the completion of the corrective phase."