Always consider hidden risks
US Dollar Index DXY: Weakness to Prevail?
August 16 2016 ( From TradingView , CNN)
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In these Greedy times (good to know that the Fear and Greed Index
from CNN Money is coming from the Fear Zone at the end of June on
the Brexit fears to the Extreme Greed Level now at 81). It is interesting
to look the behavior (correlation) of the US Dollar Index (USD-DXY) and
the SP500 Index.The US Dollar Index broke on June 24 2016 the resistance of a Daily
Downtrend. (See first chart below - Blue Trendline - Ellipse) But most importantly, we failed to break the Major Resistance Trendline that started back since December 2 2015 (See first chart below - Top Blue Trendline - Ellipse)Since July 25 2016, the US Dollar Index is Weakening and well into a Downtrend Channel. It broke on August 15 2016, a tiny support trendline, indicating that the recent weaknee to prevail on a short term basis.
For the SP500 index, it started a Bullish Trend from the post-Brexit panic on June 27 2016 to make a Breakout on July 8 2016 (from a Major Resistance Trendline that started back on May 20 2015).(See second chart below - Bottom Panel - Thick Grey Trendline - Ellipse)
As shown by the second chart below, the correlation between the US Dollar Index and the SP500 Index (on a Weekly Basis) tells that the risks have not started to be fully priced into the foreign exchange market yet in terms of volatility: expect more volatility in the US Dollar and SP500 in the next few sessions...DXY/SP500 correlation getting near the +0.70 zone, indicating foreigners more involve into the US equity market: expect higher volatility ahead as history suggest... (See second chart below - Middle Panel - Blue Area - Ellipse)Past occurrences of high weekly correlation between the US Dollar Index DXY and the Mighty SP500 Index was always a warning of a consolidation in stocks in the next few weeks as history suggest.(See second chart below - vertical white lines)But very few of us realize that for a foreigner looking at the SP500 Index on a Macro Basis (so in US Dollar Index - DXY times the SP500 Index) we did finally reach on July 22 2016 a new high ever (prior highest ever was November 30 2015) and at the resistance trendline that started back in March 2015. As domestic investors had their breakout on July 8 (SP500 Index), foreigners are seeing their total market value weakening
(SP500 times DXY Index) since July 22 2016... (See Third Chart Below - Top Red Trendline - Ellipse)If we continue to see the US Dollar weakening, the party will be over for US Financial Assets in terms of performance and low Volatility...
US Dollar Index DXY: Weakness to Prevail? $SPY, $SPX, USDX #Trading #dxy #usdollar #SP500
US Dollar Index - DXY ( Top Panel )
DXY over SP500 Correlation ( Middle Panel )
SP500 Index ( Bottom Panel )
US Dollar Index - DXY
US Dollar Index - DXY