Don’t look now, but DXY has almost fallen to our 98.976 target from last year. 
The culprits are numerous, led by the euro and yen which are both soaring relative to the greenback. The EURUSD has broken out and has nearly reached our 1.15 target.
These moves represent a very serious development for US markets, as the targets were initially established as part of a worst case scenario in 2024 and are exacerbated by a breakout in the 10Y yield.
The breakout in the 10Y is contrary to (temporarily) tame inflation and, as we have discussed, is consistent with a rejection of the USD and of Treasuries at a time when they would normally be buoyed by a flight to safety.
continued for members…
Look for futures to break down below the lower bound of the pitchfork pattern on ES.
Comments
2 responses to “Currencies and Yields Send a Serious Warning”
Hello PW, can you elaborate the outlook of TNX? Because of the tariff threat, I expect much higher inflation. So, 10 year yield would go much higher. On the other hand, a threat of recession might drive the yield lower. I am confused. Thank you.
Join the crowd! Your assumptions are spot on. The outcomes could both be correct, of course, if the inflation occurs as expected (with the 10Y rising in response) and we subsequently get a recession (which drives the 10Y and stocks lower.) The wild card is foreign owners of treasuries such as China who might decide to dump their holdings – either longer term or just to pressure the US into backing off their trade war.