As harped upon for the better part of a year now, it’s all about the US dollar with USD being the anti-market to most cyclical and ‘risk on’ markets being pumped by the Fed and global central banks. DXY and the Gold/Silver ratio have been marching along in downtrends but potentially forming little daily chart bounce patterns. USD in particular, looks this way.
We have been tracking long-term yields and reflation markets to manage this short-term disturbance that has been expected to come at or near 2% on the Continuum. But also not expecting it to be THE show stopper. Of course, I could be wrong about that so the shorter-term pictures of yields and reflation markets along with USD and Gold/Silver ratio will guide. So far the reflation indicators remain intact but in correction mode per Tuesday’s update.
If this is just a pit stop along the way the ultimate target for the 30yr yield is the convergence of the monthly EMA 100 (2.7% and dropping) and the horizontal resistance line (2.5%).
If this is to develop into something worse reflation markets will break down, Gold/Silver will join USD and they will both ride to croak the macro.
On to the USD daily futures chart…
This morning DXY has crept above the SMA 50 and is in a pattern that is very similar to the one that cropped up in July-September. Notice how it popped upward, dinged resistance and failed. This pattern, like that one, is aided by constructive RSI and MACD. The target – while still remaining analytically ‘in the game’ with respect to inflation/reflation – is the noted resistance area.
That assumes USD follows through on this pattern. One utterance from a fiscal or monetary policymaker could change that. On the other side of the coin, there is no assurance USD will stop at resistance if the bounce pattern plays out.
Bottom Line
USD is in a bounce pattern. If that pattern plays out there should be continued pressure on the markets, especially inflation/reflation sensitive markets. If it fails, the anti-USD party probably would resume. Either way, there is precedent for such a rally not to be an ultimate bull killer. That precedent is the similar pattern from last summer. Analogs like that are under no obligation to play out, however. In fact, they so often don’t. So we’d have caution on a continued USD bounce if it materializes until such time as USD fails at the noted short-term resistance in the 91.70 to 92.10 area.
