A look at the US dollar index and the Gold/Silver ratio and a bit of discussion
US dollar index (DXY) is tapping the initial target at the 200 day moving average this morning. Per the longer-term chart included in NFTRH 784, there could be much lower to go if the macro continues to break disinflationary and the Fed Funds Futures continue to ease.
But the stock market is in essence flipping them the bird with the seasonal rally. Stocks were a primary beneficiary of the 2020 inflationary operation and the Fed knows it. I really don’t think they want ‘happy days are here again!’ signaling from the market, especially if it starts dragging commodity prices up with it.
So all it would take is a little hawk flavored media jawbone management for them to support USD at any such time they wish. Support is a logical point. Beyond that, we have all those downside targets for USD and a stock market seasonal that, if we take its long-term average at face value, runs into mid-February.
As for watching for signs of trouble, the Gold/Silver ratio would accompany Uncle Buck if he is going to try to make some trouble during holiday season. As you can see, the GSR dropped hard but thus far remains within the bounds of a potential new uptrend.
It is likely that both of these items would break down harder if the seasonal party has some legs to it. Other side of the coin is that if USD and GSR bounce together there will likely be interim volatility to the seasonal.
