It’s all about the Dollar… The rally of the reserve currency has been all the rage in recent weeks, and despite a brief pullback, the trend continued in earnest this week. The Greenback pushed to new highs against most of its major peers, with especially the Euro being in trouble from a technical standpoint, as the way towards the key 1.1450-1.15 zone now looks paved for the EUR/USD, the most traded fiat pair.
EUR/USD, Daily Chart Analysis
That level, which acted as resistance from 2015 to mid-2017 could be tested in the coming week, and should it fail to hold, the Dollar could be back in a bull market form a long-term perspective, which in turn could have major implications across all asset classes.
Dollar Index (DXY), 4-Hour Chart Analysis
For now, Dollar shorts can still hope that the currency will reverse before a major technical switch, but as we warned following the regime change in February, as long as Treasury yields are rising, the Dollar could have the upper hand. Also, if the Greenback gathers momentum even a reversal in yields won’t guarantee a trend change in the currency, as the record amount of Dollar shorts will provide ample support for a long while.
Stock markets are still mostly in positive short-term trends, despite yesterday’s dip, but the divergences between the major markets are still apparent, and market internals continue to signal trouble for bulls. The S&P 500 index is trading right at the declining trendline, and just above the key $2675-$2700 zone after the breakout attempt, with the MACD indicator signaling a bearish move.
S&P 500 Futures, 4-Hour Chart Analysis
The zone which has been the center of price action ever since the February crash, should hold up for the bullish scenario to remain intact, but we wouldn’t be surprised on a quick move below it, with another test of the lows afterward. The Nasdaq, more precisely the dominant tech giants are still the engine of the market, but as the share of the FAANG stocks continues to rise (it’s now around 27% of the index) the fragility of the market is also increasing.
Treasury Yields Pause after Surge
US yields rose to new decade-long highs across the board yesterday, triggering the breakout in the Dollar and the decline in stocks. Today, we are seeing a dip in rates, with notable flattening of the curve yet again, as long-term bonds are outperforming.
US 2-Year Treasury Yield, 4-Hour Chart Analysis
Gold continues to trade below $1300, but still outperforming weighing in the recent rally in the Dollar, while the Yen is showing relative strength as stocks are still soft. WTI crude oil is holding on above $70 before today’s US inventory data, despite the USD rally, as Middle East tensions persist and stocks markets are still above the key February lows.
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