In this article we will pay attention to ongoing market correlations between the USD and the other asset classes and how it could affect the market in the coming days and weeks.
DXY USD index is trying for some time to break above the important 95 level which will open the way for a upside extension into the 102 level as you can see on the monthly chart. On a daily chart we can see that the DXY is supported for this move by the 94 level. It is important for this level to hold so we could see an upside extension higher.
As the DXY is testing 95 level and being supported by 94 level, US 10 YR yield is bouncing from the 2.80 support for an another attack to 3.10 level. Similar to the DXY, 10yr yields have to hold 2.85 level for this to happen.
This is now a crucial point for the USD-10 yr yield correlation which varied from time to time and now it seems to be changing from positive to negative as shown on the chart below. This means that the 10 yr yield consolidation could not affect he dollar so much as it did in the past, also if we have a safe haven flight into the bonds, which will cause to yields to fall, the dollar could continue higher and it will keep its safe haven status.
The more important correlation, as the S&P500 Index is struggling to extend to the upside, is the reversion from a positive correlation between this two assets, to negative in the recent days as you can see it on the chart. This means that, if the DXY breaks above the 95 level, we could see S&P500 Index downside extension below the 2700 level., and this will lead to a bearish reversal and a broken top formation which will lead to a downtrend in the U.S. stock markets as USD strengthens across the market.
The last correlation will give the sense where will the Gold continue from this crucial 1250-1260 zone continue if we see the DXY upside continuation. We have a negative correlation of the USD and Gold and a break below 1250 will mean that the DXY is braking above the 95 level.
All of this charts are showing a complex market momentum marked by the crucial 95 level for the dollar index. You will need to watch for a daily closes of this instruments to choose the key entry trading points.
Happy trading! (click on the chart to enlarge it)
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