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.
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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.
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