H4 Flag Breakdown
The top chart shows the H4 US 10-year real rate and the middle chart shows the USDOLLAR. The bottom indicator shows the correlation coefficient (cc) between the two.
Both series show a breakdown from flag patterns (black parallel lines). This is not surprising given the robust cc of 90%.
The Fed hiked rates by 25 bps yesterday. However, the Fed chair, perhaps mistakenly, loosened markets when he stated, "If we feel like we've gone too far, and inflation is coming down faster than we expect, then we have tools that would work on that." The press conference offered little pushback against current market thinking. This caused risk assets to rally, and money to rotate out of safety, e.g., FXCM's USDOLLAR basket (green arrows).
Daily Bearish Channel
FXCM's USDOLLAR basket dropped from its neutral area between the blue bands into its bearish channel between the lower blue and red bands. A clear sign of money rotating back into risk.
The daily stochastic remains positioned in its lower quintile (green rectangle). The longer it maintains this position, the greater the likelihood of further greenback weakness.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.