US dollar tenacity pattern last seen in 1997

The US dollar index is set to post its eighth consecutive weekly increase, a pattern last seen in 1997.

The tenacity of the US dollar rally is highlighted by an unusually broad advance, against each of the six components in the basket. The US dollar index, the oldest traded index of six-currency basket (EUR, JPY, GBP, CHF, CAD, SEK) is up 5% from its May lows, currently trading at its highest level since July.

-      Yen weakness has been part and parcel of the intensifying rally in US equities, further driving flows out of lower yielding JGBs in search of recovery-based back-up in US and UK yields.

-      Chatter from UK clearing banks reportedly selling GBP ahead of the Scottish Independence referendum, expectations of possible jawboning /intervention from the Swiss National Bank aiming at supporting EUR/CHF (which could support  USD/CHF).

-      Further declines in New Zealand’s dairy prices are contributing to the dollar’s relative outperformance.

-      The euro remains pressured by the possibility of additional rate cuts this week, aimed at encouraging bank participation in next month’s TLTRO.

Broad ISM showing

The August ISM manufacturing index posted its sixth monthly increase rise over the last seven months, which is the most consistent seven-month period of gains since 2009 – when QE1 kicked off.

The new orders component surged to 10-year highs, also rising for the sixth straight month for the first time since 2009.

The employment component slipped by 0.1 point, following the 5.4 increase in July, which was the second +5 pt rise in four years

The rise in the “national” ISM is consistent with the rising trend in the services and manufacturing ISMs, as well as the Federal Reserve Bank of NY’s empire survey.

Last week, the Chicago Purchasing Managers Index posted a 22-point jump in August to 64.3: registering the biggest rise since July 1983.

Gold damage

Gold drops $20, to post its biggest decline in six weeks on a combination of broadening USD strength and a simultaneous rise in US bond yields, with the 10-year yields showing the biggest rise since July 30^th.

Gold is at risk of breaking below the December trendline support, in which case it could extend declines towards $1220. Gold bulls will want to wish for a Friday close above $1272-73 to avoid such a break.