What an Interesting week it was in the currency market. Some violent whipsaws and washout occurred in the major pairs. Let's have a top down and bottom up approach to why I think DXY is a sell for a couple of weeks or months before we see a move up. I can be completely wrong as well but I am willing to take this chance as I believe, we gonna see a swift move to whichever direction it would be. Shorts, I prefer!
Top Down: Fundamentals
US Growth: Recent data PMI, ISM has either shown stagnant/weak numbers. Few were in line as expected which means we are not going anywhere. (Trade war is the root / primary reason for low growth )
Employment: June's ADP number with NFP was the worst number we saw in a decade. However, many considered, it could be due to strong growth the US has seen over the months and job sectors have been pretty much filled. That is considered. But, wages have not been increased if growth is going so strong and that is a negative sign as the stock market was sitting at all-time highs during this period making people believe that pension funds are making double-digit returns.
Bottom-Up Approach:
Bond Market: Since the time, Trade war word started to get its importance back in mid of 2018 with tariffs, we have started to see USB10YUSD rise exponentially after consolidating for a while at the bottom and what happens when the bond prices rise? Yields go down. Investors are fleeing from risk assets to safe havens where they want their capital to be safe even though yields are low and rush toward the yield has caused US10Y to fall massive from above 3%.
Have a look at the US 10Y T-Note on a weekly chart, you might see some Cup and handle formation (in the making) after some weeks of fall. Usually, Bond markets show the first sign of anything that could occur. That pattern is also visible in the XAUUSD chart when Investors equally piled in money into safe assets like T-notes and Gold. Many didn't see it coming. Now, technically, if we see, cup and handle forms and gets validated.. then USB10YUSD has a long way to go and yields will fall even more. Hence, there is no advantage to keep the capital in USD and then. we gonna see the fight for yields that would emerge.
ECB has just hinted that it could start raising rates with BOE schedule for its rate decision this week (which I expect to be on hold). However, Mark Carney could sound more hawkish and correspondingly express its concern over Brexit and trade war which has become the norm.
Technically, another reason for the DXY is also a correction we could be seeing after a strong impulse with an equal number of days it took. Basically, a repetition of the cycle after a consolidation.
Thank you for sticking by and reading the whole thing. I hope, it made some sense to why I am backing up with my reasons and not just going one way to cal the move.
Please feel free to share your views. I might as well learn or see something which I missed.
P.S. Have a look at USDJPY for the past two weeks despite seeing a gigantic move in the DXY and SPX500. (I know we can ignore the move due to the seasonal factor/strength of JPY for the month of June).
Top Down: Fundamentals
US Growth: Recent data PMI, ISM has either shown stagnant/weak numbers. Few were in line as expected which means we are not going anywhere. (Trade war is the root / primary reason for low growth )
Employment: June's ADP number with NFP was the worst number we saw in a decade. However, many considered, it could be due to strong growth the US has seen over the months and job sectors have been pretty much filled. That is considered. But, wages have not been increased if growth is going so strong and that is a negative sign as the stock market was sitting at all-time highs during this period making people believe that pension funds are making double-digit returns.
Bottom-Up Approach:
Bond Market: Since the time, Trade war word started to get its importance back in mid of 2018 with tariffs, we have started to see USB10YUSD rise exponentially after consolidating for a while at the bottom and what happens when the bond prices rise? Yields go down. Investors are fleeing from risk assets to safe havens where they want their capital to be safe even though yields are low and rush toward the yield has caused US10Y to fall massive from above 3%.
Have a look at the US 10Y T-Note on a weekly chart, you might see some Cup and handle formation (in the making) after some weeks of fall. Usually, Bond markets show the first sign of anything that could occur. That pattern is also visible in the XAUUSD chart when Investors equally piled in money into safe assets like T-notes and Gold. Many didn't see it coming. Now, technically, if we see, cup and handle forms and gets validated.. then USB10YUSD has a long way to go and yields will fall even more. Hence, there is no advantage to keep the capital in USD and then. we gonna see the fight for yields that would emerge.
ECB has just hinted that it could start raising rates with BOE schedule for its rate decision this week (which I expect to be on hold). However, Mark Carney could sound more hawkish and correspondingly express its concern over Brexit and trade war which has become the norm.
Technically, another reason for the DXY is also a correction we could be seeing after a strong impulse with an equal number of days it took. Basically, a repetition of the cycle after a consolidation.
Thank you for sticking by and reading the whole thing. I hope, it made some sense to why I am backing up with my reasons and not just going one way to cal the move.
Please feel free to share your views. I might as well learn or see something which I missed.
P.S. Have a look at USDJPY for the past two weeks despite seeing a gigantic move in the DXY and SPX500. (I know we can ignore the move due to the seasonal factor/strength of JPY for the month of June).
