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Sharp Moves in Currencies Could Be Followed by More Sharp Moves -- In the Opposite Direction


The fixed income and currency markets suggest we may see a bit more upside in risk assets in the short-term, but that a reversal lower in risk assets / higher in safety will soon begin.

I've shared with clients recently that my upside target for the S&P 500 (^GSPC) is around 1,485 or so. A move to that level in stocks would fit well with the scenario where TNX moves up to 1.955% - 1.978%. Once we hit the resistance – the level at which a turnaround begins – I'm expecting a correction lower in rates. That move lower (wave v on the monthly chart) should take TNX down to at least a test of the recent low yields and perhaps even lower (it really depends on where wave v commences).

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The euro / US dollar currency cross (EURUSD) has pulled off nearly a vertical rally over the last few weeks, causing a lot of pain for the euro bears out there. I do think it has higher to go still, but a corrective move lower should occur prior to further upside taking place. One possible pullback scenario is shown below:

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US Dollar Index reflects the recent action in the euro.

It's the same story in reverse for the US Dollar Index (see below). The DXY has been falling off a cliff recently – clearly spurring the rally in risk assets on to new heights. It should move lower, but is clearly oversold and should see a corrective bounce soon. One bounce scenario is shown on the chart.
No positions in stocks mentioned.

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