ATFX Summary: Wave theory believes that wave 4 adjustments often unfold in a "time-for-space" mode, and complex adjustment structures often appear at this stage, such as triangles, platforms, joint types, etc. The adjustment depth of wave 4 is often shallow, but its duration is very long. After the end of wave 4, the market's direction is still the same as the previous main trend. When the trend of a certain product shows an obvious horizontal narrow range , it can be regarded as wave 4 and make a prediction: after the shock ends, the probability of continuing the previous trend is high.
US dollar index has recently shown the above characteristics. On December 6, the closing price of the US dollar index was 105.56; on December 14, the closing price was 103.63. Since December 6, the market price of the US dollar index has not exceeded the above-mentioned upper and lower boundaries, and the characteristics of narrow range fluctuations are significant. According to the conclusion of the wave theory, there is a high probability that the U.S. dollar index will continue its decline after the shock ends. In other words, 103.63 will be broken before 105.56.
Other analysis methods also support this conclusion. The moving averages MA60 and MA120 are downward, which means that short forces are dominant; MA250 has repeatedly entwined with this month's market price, which means that the current shock will continue for a long time. The MACD histogram is near the zero axis, and the fast and slow lines are below the zero axis, which means that the short-term shock has signs of a downward shift in the center of gravity.
The Federal Reserve's tightening monetary policy will continue with the interest rate decision in late January and early February, and the interest rate range is expected to be reduced to 25 basis points. Although interest rate hikes will continue, the boost to the U.S. dollar index has disappeared. In fact, in the long run, the Federal Reserve will likely start cutting interest rates in the second half of 2023, because the current dual unfavorable factors of high inflation and high interest rates in the United States will lead to a U.S. economic recession.
Figure 1, ten-year U.S. bond yield-ATFX
The performance of the ten-year U.S. bond yield is relatively abnormal. Since December 15th, the yield has rebounded rapidly and has reached 3.8485% so far. Logically speaking, now that the Fed has scaled back its single rate hike and there is motivation to cut interest rates in the long run, the yield on the 10-year U.S. Treasury note should continue to fall. The abnormal performance of yields means that market funds are once again divided on the direction of the Federal Reserve's monetary policy. Some funds are betting that the Federal Reserve will launch a radical interest rate hike policy again next year.
Rising bond yields will stimulate a stronger U.S. dollar index. The U.S. dollar index has fluctuated since December 15, and the resonance between the two has not been well reflected. Considering that the bond market has a larger capital stock and its trend is more forward-looking, the U.S. dollar index is likely to rise following bond yields in the future. Comprehensive view of
ATFX analyst team: From a technical perspective, the U.S. dollar index continues its decline after the end of the shock, but bond yields give the opposite judgment. Considering that the current macroeconomic data in the United States does not support the continued rise in bond yields, the probability of correct judgment from a technical perspective is higher.
ATFX risk warning and disclaimer: The market is risky, so investment needs to be cautious. The above content only represents the views of analysts and does not constitute any operational advice.
This article comes from the financial industry
