<p></p><p>The US 10-year Treasury yield reached a high of 3.026%. This is above the Maginot line of 3%.</p><p></p><p></p><p> <b><span style="text-decoration: underline;">What is next</span></b></p><p>The Maginot line of 3% is an important barrier that has capped the Treasury yield. Crossing this line indicates further upside for Treasury yield and within reach of 3.22% in the medium term.</p><p>We highlight the key levels as follows:</p><p>i) 3.052% - 2014 high</p><p>ii) 3.221% - 2011 July high</p><p>iii) 3.766% - 2011 high</p><p> </p><p><b><span style="text-decoration: underline;">Buy US Dollar</span></b></p><p>Comparatively, the US Dollar has lagged behind the rise in US treasury yield. This is attributed mainly to the strength in Euros with recovering economic growth in the Eurozone.</p><p>Now, the Eurozone economic growth appears to have peaked. Deterioration in business activity and increasing dovish rhetoric from the ECB have weakened the Euro. For the past two weeks, Euro has corrected more than 1% against the US Dollar. It has also cracked below the 100 days moving average, an important trend indicator. With the help of Euro weakness, the US Dollar Index has broken past its 100 days moving average to close at 91.17.  This is a bullish setup for US Dollar to trend higher.</p><p>We highlight the key levels as follows:</p><p>i) 92.00 – 200 days moving average</p><p>ii) 95.15 – 2017 November high</p><p>iii) 103.82 – 2017 high</p><p> </p><p><b><span style="text-decoration: underline;">Buy dollars, wear diamonds </span></b><b><span style="text-decoration: underline;"></span></b></p><p>After his March appointment, the US economic advisor Larry Kudlow made a recommendation to “buy King Dollar” in his first interview. Since then, the US Dollar has gone nowhere with much of the upward climb only occurring in the past few days.   </p><p>Now, a hawkish Fed is driving the US Dollar appreciation. The monetary base for US Dollar has been shrinking, driven by selling back of bonds by US Fed. Short-term LIBOR yield has also been climbing up. Although global liquidity remains flush, this could easily unravel on any rapid rise in US Dollar. It could still be early days in the upward climb of the US Dollar in comparison to the surge in US 10-year yield and LIBOR. </p><p> </p><p>The old saying of “Buy dollars, wear diamonds” could still hold true.</p><p> </p><p><b>Edmund Chan, CFA</b></p><p><b> </b></p><p><b> </b></p>