Era of Inflation is just beginning
Coming out with a new perspective on the mighty DXY where I see how the dollar could move in the coming months. This is just an hypothesis. so, take it with a pinch of salt, if you can!
Macro-Economics #101
Alright, we have seen the US has now over 30% of its population vaccinated with fantastic economic numbers coming out in the past couple of months. That has also led to renewed optimism with the continuation of the "blue wave" scenario in the risk assets we saw , post US Presidential election of 2020. At the same time, we also saw US10Y yields continuing higher with forward yield curve that has come into static in nature which was previously flat or either inverted due to uncertainty prior to US Election.
This has caused a spike in inflation that is evident from the commodities sector where most of the commodities including the energy sector have pushed up in prices.
Specifically, we have seen lumber LBS1! soaring almost 160% YTD. that has also led to the rise in housing prices. Classic demand and supply theory out here? Could be. Albeit, the rising price still doesn't justify the current level in short-term rates as the rates on US10Y should have been now almost 2% with inflation at 2% or above i.e. FED`s target. So, I am expecting the unexpected out here, i.e. a sudden push up in yields which were evident in May`s post NFP numbers were out.
The US10Y managed to close in positive territory despite having worse than expected job numbers that were missed by almost 750,000. But according to fed, the bad news is also good news.
So, the numbers for next and the following months would be good and with current stimulus checks hitting the banks and people ain't gonna miss the opportunity to diversify and look for returns in the easiest times in the financial market where volatility has once again been pressed down.
Although, seasonally MAY is bullish for DXY, Hence, we could see the reverse in the trend in the coming days of this month. Hence,I am expecting a sudden sell-off in dollar only after the next Fed meeting that is in August when the fed could say, we are not yet ready to TAPER and from there, we could once again see the continuation in equity markets and risk assets because spending and rates would cause inflation to rise more that may further weaken the dollar.
Technicals levels.
Good RR to short would be from 95 on DXY.
Macro-Economics #101
Alright, we have seen the US has now over 30% of its population vaccinated with fantastic economic numbers coming out in the past couple of months. That has also led to renewed optimism with the continuation of the "blue wave" scenario in the risk assets we saw , post US Presidential election of 2020. At the same time, we also saw US10Y yields continuing higher with forward yield curve that has come into static in nature which was previously flat or either inverted due to uncertainty prior to US Election.
This has caused a spike in inflation that is evident from the commodities sector where most of the commodities including the energy sector have pushed up in prices.
Specifically, we have seen lumber LBS1! soaring almost 160% YTD. that has also led to the rise in housing prices. Classic demand and supply theory out here? Could be. Albeit, the rising price still doesn't justify the current level in short-term rates as the rates on US10Y should have been now almost 2% with inflation at 2% or above i.e. FED`s target. So, I am expecting the unexpected out here, i.e. a sudden push up in yields which were evident in May`s post NFP numbers were out.
The US10Y managed to close in positive territory despite having worse than expected job numbers that were missed by almost 750,000. But according to fed, the bad news is also good news.
So, the numbers for next and the following months would be good and with current stimulus checks hitting the banks and people ain't gonna miss the opportunity to diversify and look for returns in the easiest times in the financial market where volatility has once again been pressed down.
Although, seasonally MAY is bullish for DXY, Hence, we could see the reverse in the trend in the coming days of this month. Hence,I am expecting a sudden sell-off in dollar only after the next Fed meeting that is in August when the fed could say, we are not yet ready to TAPER and from there, we could once again see the continuation in equity markets and risk assets because spending and rates would cause inflation to rise more that may further weaken the dollar.
Technicals levels.
Good RR to short would be from 95 on DXY.
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