Good afternoon. Today is the second week of 2025 and I want to take this opportunity to wish all a happy 2025 and Happy New Year.
Now, today I'm going to spend a bit of time to talk about the US Dollars in particularly the dollar index. And while I'm on the topic of the dollar, I might as well also talk a little bit about the dollar relationship with the RMB, which is the Chinese Yuan.
By now it's common knowledge that since September 18, 2024, the US Federal Reserve has pivoted by cutting interest rates from the high of 5.5% all the way down to the current 4.5%, after a series of three rate cuts starting in September 18th by 50 basis points.
And we knew last month in December, the Federal Reserve cut another 25 basis points, bringing the total interest rate cut to 100 basis points. Currently, the Fed fund rate is trading anywhere between 5.25% to 5.5%.The effective fed fund rate currently is a 4.33%.
Now, typically when the Fed cuts interest rates, it's logical to conclude therefore, the dollar should fall. Not only did the dollar not fall, the dollar has been climbing steadily for the last three months since September of 2024.
Coincidentally, we also saw the US treasury yield as uninverted, meaning to say that the yield curve has actually now gone back to normal with the short term treasury bills yield now lower than the longer term treasury bonds and treasury notes yield.
So this is something that we need to talk about because I think it has everything to do with expectation of further Fed intervention in the markets. As usual, I'll be using the price chart to show you what I mean and then how we should be playing the dollar going forward in 2025, at least in the near term.
Now what you are seeing in front of you here is the monthly time frame for the dollar index, which is a cash index. We can see that the dollar index has hit a bottom in 2008 with a print just above just below the 0.7 mark.
And we have seen the dollar index has been climbing steadily all the way to the high of 114.78. That was in 2022, that is in September 2022 and it has pulled back a little bit. And now we can see over the last few months the dollar index is climbing once again, suggesting that the trend in the dollar index remains very bullish and decided to extend even higher.
Now let's take a look at a lower time frame in the daily time frame for the futures contract. Now this is the mini dollar index traded in the Intercontinental Exchange, which is called ice. And this is the daily time frame. So we can see that the low was in place in September last year. And over the last three months the dollar index has been climbing steadily.
And although we have a bit of a pullback this morning, the larger time frame suggests that we probably will see the resumption of the market low for extending even higher in the days ahead. Now, there is a every possibility that over the next few weeks or there is a possibility that the dollar will continue to climb higher in the dollar index, possibly targeting anywhere between 111 to 114 in the futures contract.
So what it means is that near term that we can expect the dollar to remain very bullish and to extend even higher. Now, when we compare this to the Chinese Yuan, which is the dollar versus the cnh, which is the offshore cnh, which we can buy and sell. And of course the history here is not as long. We can see that the low in the $cnh on the monthly time frame bottoms out in 2014 and it has been climbing steadily.
Now, the high traded is in September, sorry, in October of 2022.Okay. And the high trader is 7.375. We have a bit of a sharp pullback here. Before the market attempt to take out the most recent high, it failed at 7.368. And then pull back one more time. Now, over the last three months, the dollar versus the CNH has been climbing again. The highest traded was last week at 7.36 or 3.700.
And we can see that there's a possibility that this time the high here at 7.375 may not necessarily hold.
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