DXY could correct now!

Hey tradomaniacs,

DXY (US-DOLLAR) testing a strong resistance-zone at the 50% retracement of the previous impulse 👉

This is a zone of possible high bearish confluence after the previous breakout of the trendline.

We can at least expect a pullback here before we head into the Wave (C) with another attempt to move up.

For now I expect a move down if stocks continue to be steady after a volatile opening.
Just watch out with the yields, which are pushing the USD!

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Peace and good trades
Irasor

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Note

Markets are very boring.. almost like watching paint dry so I will stay out for now.

Overall I see a tendency in the markets but we might have to wait for fresh fundamental impulses such as the Retail Sales and the FOMC Meeting minutes.

Stocks seem to find support, DXY seems to find resistance as YIELDS are not moving at all.

Let`s wait for the Wallstreet to open.🙏

Note

Why is the market currently tricky?

I will try to explain a long story in short:

The U.S. 10 Year Treasury Note is currently at 1,305%, the first time since January 2020.

The Yield-Curve is steepening and shows that long-term-yields are worth more than short-term-yields, which is good for institutions like Banks as they borrow money in short-term to make busines with long-term-lendings. In other words, they take a credit and pay the short-term-yields and hand this money to customers, which pay for the long-term-yields. (Term transformation)

There are markets that benefits from higher yields such as the energy-section, and markets that suffer when yields rise, which is why the stockmarket is currently not moving with the same confluence like before.

When yields rise bonds fall, currently showing a bloodbath when you look at the globale negative yielding bonds.
Since yields rise, we see a divergence in returns of S&P with 1,4% Dividends and 30 Y. Bonds with 2% dividends.

This means the market sees an alternative in terms of return to stocks 👉 If stocks start to fall, Bonds might show the next bullish wave as yields were consistenly rising.
Why? Because dividends with stocks are interesting as long as they go up!

But here is the problem:

The FED could cap the interest-rates with a Bond-purchasing-programm.

As they already buy bonds they could increase theire volume and cap the interest-rates with rising Bonds.
If this is the case, we might see falling yields, which would even worsen the real-interest (Return-Inflation) of them and so the demand.

Inflation expectations:

The inflation in the USA is way higher than in Europe.

This means that the European Central Bank has way more leeway to use their tools in order to boost inflation.

Since the economy is doing better and better in the USA, the market expects economy to recover way faster than the FED expects, especially since Biden stimulus-programm seems to be feasible in the short-term.
If the economy really improves it would force the FED to adjust their monetary policy 👉 Less dovish tones and a rising US-DOLLAR.

This could mean that we will see a stronger US-DOLLAR against the EURO in case of good economic data from the USA. (In the past it has been the over way around as the positive data confirmed that the FEDs dovish policy work and expects even more stimulus 👉 Dollar drops with positive data)

I don`t want to keep this too complex and long and will tell you what I`m waiting for since we have these two important ongoing moves in the market:

1️⃣ Core Retail-Sales 👉 Negative data could dim the mood of those who bet against the FED

2️⃣ FOMC-Meeting 👉 Any hints about a potential cap?

A cap for interest-rates could be negative for the US-DOLLAR, in confluence with negative economic data we can expect momentum to the downside.

No caps for interest-rates could be positive for the US-DOLLAR, in confluence with positive economic data we can expect moves to the upside.

Note

Trading2ez

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