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Risk Tells in the Currency and Bond Markets Pointing to Further Short-Term Downside

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Expect a downtrend from now until October and then a rally into the end of the year.

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CURRENCIES

The EURUSD is continuing to pull back as expected.

The last couple of weeks have brought nothing but weakness in the euro / US dollar currency cross (EURUSD). Let's not go crazy with worry, however, as the rally that preceded this selling was nearly parabolic on the upside – a correction was to be expected. Even as impressive as the rally was, however, this sell-off could be nearly as vicious on the downside. My call remains for the EURUSD to pull back to 1.23083 (from 1.28 + currently). Such a decline will almost certainly mean more difficulty in equities in the short-term (again, a month end boost notwithstanding).


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The US Dollar Index is rallying as one would expect with the weak EURUSD.


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The US Dollar Index seems to be on a track to retrace most of the July - September decline that occurred. As we've come to learn, a higher DXY should mean lower price levels in risk assets and in precious metals.
No positions in stocks mentioned.

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