By J.C. Parets & All Star Charts
Thursday, 22nd December, 2022
1/ Dollar Digs In
2/ Risk-On Pairs Look Flat
3/ Rates Catch Support
4/ Precious Metals Shine
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1/ Dollar Digs In
The U.S. Dollar Index (DXY) is finding its footing after experiencing significant downside pressure in recent weeks. Price is currently testing a critical level of former resistance marked by a shelf of former highs.
With so much price memory here, this area represents a logical level for demand to absorb supply. So far, that’s the case as former resistance has become support.
If DXY begins to mean revert in the coming days, we could expect risk assets to come under increased selling pressure.
On the other hand, a downside violation of this critical level would likely result in a tailwind for stocks and risk assets alike.
2/ Risk-On Pairs Look Flat
When we think of DXY catching higher, we have to consider how it is performing against its alternatives. The lack of expanding participation beyond the DXY components, especially risk-on currencies, suggests near-term dollar strength.
The triple pane chart of the Australian (AUD), Canadian (CAD), and New Zealand (NZD) dollars against the U.S. dollar below highlights what we already know. It’s messy out there. At the same time, these currencies provide key levels for measuring the dollar more broadly.
All three pairs have so far challenged their July pivot lows to varying degrees of success. The NZD holds above its respective lows, while the AUD straddles its level, and the CAD retreats lower.
A sustained downtrend in the dollar might not come to fruition until these three commodity currencies reclaim their summer pivot lows. And with the Aussie and Kiwi losing ground today, a near-term bounce in King Dollar could be likely.
3/ Rates Catch Support
When it comes to U.S. Treasury yields, we see a similar behavior as in the U.S. dollar.
Below is the 30-year Treasury yield (TYX) testing a critical polarity level. This support zone not only represents the summer highs from earlier this year, but the highs of the previous cycle from 2018.
So far, this trend is intact, and as long as we’re above these old highs, we’re looking for a presumption of the rising rate environment we’ve been in since 2020. However, a break below this level would indicate damage to the primary trend as well as a relief in selling pressure for long-duration assets.
4/ Precious Metals Shine
Precious metals have all rallied considerably in recent weeks. While gold and silver have reclaimed critical levels of interest, platinum isn’t far behind.
The chart below shows our equal-weight precious metals index hooking back above its prior cycle highs from 2008 and the 1970s.
As long as we’re above that shelf of former highs, our bias would remain to the upside.
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Originally posted 22nd December 2022
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