US Treasuries are breaking out, according to BofAML's Macneil Curry, which is very supportive of the US dollar (especially against the JPY and EM FX). The only caveat, he warns, keep a close eye on fixed income volatility... Via BofAML, 5yr Treasuries are breaking out. This is supportive of the US $ against ¥ US Treasuries yields are on the move, resuming their long term uptrend. Our focal point for this move is 5yr yields which have broken out from a 1yr range trade and resumed their long term bear trend, targeting 2.025%/2.055% and eventually 2.18%/2.25%. This should help propel the US $ higher and maintain its long term bull trend. Looking at a weekly chart of the US $ Index, the trend is on track for long term targets between 89/91, particularly as the weekly ADX is breaking out through 6yr trendline resistance (meaning the trend has further room to run). In the very short term, however, we could see a period of pause in both the US $ bull trend and the advance in treasury yields as 2yr yields are testing a confluence of l/term support at 58.9bps/61.1bps and the US $ Index is testing the Jul'13 highs at 84.75. But we must stress that this should be a temporary pause and ultimately a buying opportunity. In particular we think that the next bout of US $ strength is likely to come against EM FX. $/¥ should also continue to appreciate, with a break of 108.95/109.00 exposing 12yr trendline resistance at 109.31 ahead of 110.67 and eventually beyond. One CAVEAT keep a close eye on FI Vol. A spike in the MOVE Index could lead to a nasty corrective snap back, albeit a snap back to buy $/¥; especially if 107.49/50 holds.