On May 16, we adopted the position that weak inflation – driven primarily by oil prices that we expected to plunge after a brief rally – would lead the EURUSD to rally sharply [see: May 16 Update on EURUSD.]
Our forecast, shown below, also required DXY to make new lows — which most analysts derided as unlikely in a rising interest rate environment.
Sure enough, WTI spiked for about a week, then plunged right to our downside target over the following month.This took the wind out of inflation’s sails, leaving the Fed’s rate hike argument looking more than a little iffy.The net effect? Yesterday, EURUSD nailed our upside target.
With Yellen’s testimony coming up, it’s an opportune time to review the overall currency picture and its likely effect on equity prices – and, by that, I’m not talking about the latest VIX-driven ramp job. I’ve been promising a turning point for the past several weeks, and it’s finally here.
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