The US dollar struggled the week before Christmas, despite the final approval of tax changes and a backing up of US interest rates. The dollar fell against most of the major currencies except the Japanese yen. The yen is particularly sensitive to changes in the US 10-year yield and the 14 bp increase over the past week, the most in Q4, kept the yen under pressure.  

However, even with the US 10-year yield reaching nine-month highs, the market, or what is left of it, showed little enthusiasm for the greenback as it approaches the upper end this month’s range (~JPY113.75). Still, the bottom end of the recent range (~JPY112.00). The daily Slow Stochastics and MACDs are supportive.The 50-day average crossed above the 200-day average (golden cross) in early November, though it did not spur dollar buying.  

The dollar had shot higher at the end of 2016 against the yen, and after correcting lower in the first part of 2017 spent much of the year in range. Although the edges frayed, the range was mostly between JPY108 and JPY114.50. We often find the dollar-yen is a range-trading pair, and when it looks like there is a trend, it is often a transition to a new range. We anticipate that it will be a higher dollar range next, even if not right away.  

The euro traded heavily before the holiday-weekend as the political parties that ostensibly seek Catalonia’s independence won a majority of seats (but not popular vote) in the regional election. Spanish stock underperformed, as one would expect, and the two-year yield rose four basis points. However, the 10-year yield was finished slightly lower.  

There is an understandable fear that the independent parties are secessionist too and there is a repeat of this past October confrontation. We do not expect a less-secessionist minded leadership to emerge in Catalonia and suspect the programmatic differences between the parties may make for a more fragile coalition than may be appreciated in the immediate aftermath of the election. The Ciutadans picked up 12 seats to 37 in the new assembly, the largest single party.It is opposed to independence.