Chart of the Day DXY (Dollar Index)
DXY Mapping An Impulsive Decline
The Fed’s emergency 50bps rate cut only provided temporary salve and Wall Street tanked again overnight and UST bonds saw a choppy session amid a bull flattening rally as Covid-19 concerns re-emerged, especially for the US. The S&P500 closed down 3.39%, with software, media and capital stocks driving the declines, while the flight to safety drove the bull-flattening in the UST bonds with the 10-year bond yield down to a record low of 0.898% and the 30-year real yield below 0% for the first time.
Meanwhile, OPEC has proposed a 1.5m barrel output cut, pending Russia’s decision. Separately, Elizabeth Warren has dropped out of the US presidential race. If financial markets persist in a free-fall, the Fed may find itself under pressure to cut again (another 50bps?) at the upcoming 18 March FOMC meeting. Note Fed’s Kaplan (voter) opined “I am going to be watching very, very carefully the path of diagnosed cases…to judge what’s appropriate and whether we can wait longer”. At this juncture, the rapid deterioration of the US sentiments as the cases of Covid-19 grow suggests that recession fears will continue to drive the Fed’s playbook and we may be closer to the 0% bound for the US faster than expected.
Today, in the US, non-farm payrolls market watchers expect a moderate 175,000 (Bloomberg median estimates) in February from 225,000 in January, whilst the unemployment rate may hold at 3.6% and wage growth stabilize at 3.0% YOY. January trade balance and wholesale inventories data are also due in the US. Meanwhile, Chicago Fed President Charles Evans and Cleveland Fed President Loretta Mester will be speaking. Early Friday, St. Louis Fed President James Bullard Will also speak. New York Fed President John Williams and Boston Fed President Eric Rosengren will follow, Kansas City Fed President Esther George will complete the list of speakers ahead of the FED blackout period.
From a technical & trading perspective the DXY has made an impulsive decline from the weekly double top highlighted in the last analysis the velocity of the decline will likely be the cause of some structural repositioning in the DXY over the coming week CFTC positioning data released this evening will certainly be an interesting input. Technically, it reasonable to expect that prices will make an initial foray below 95.50 to test demand here, the lower parallel of pitchfor comes in around this level and we may see some profit taking into the weekend that will add ot support here, if we do stabilise here then corrections should find decent supply on any attempt to challenge 97.00, the first hurdle will be the 96.50 which will likely cap the first leg of any correction. Ultimately while 97.00 contains correction all roads point to a test of 94.50 in the coming weeks. The DXY read obviously has implications for FX majors we are already seeing the GBPUSD & NZDUSD Charts of the Day play out and I will be updating the other majors next week.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!