By J.C. Parets & All Star Charts
1/ The Dollar Stalls
2/ A Relentless Rise in Rates
3/ Uranium Rocks!
4/ Emerging Markets Doing Time
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1/ The Dollar Stalls
The failed breakdown in the U.S. Dollar Index (DXY) produced quite the run.
But after climbing almost 4% over the past four weeks … Was that it for the U.S. dollar bounce?
Check out DXY daily chart, highlighting a downtrend line and the July pivot highs:
The downtrend line and the former pivot highs coincide, forming a confluence of potential resistance. And so far, DXY has stalled just below these levels.
The 103.50 level represents our line in the sand. Our tactical bias is neutral for the U.S. dollar as long as the index chops below that level.
But potential dollar strength and stiff headwinds for global risk assets lie on the other side of that line.
2/ A Relentless Rise in Rates
Rates continue to rise here at home and abroad.
While the U.S. 30-year yield is challenging its October pivot high from last year, long-duration rates in France are already on their way to new highs.
Here’s the French 30-year yield posting its highest level since 2013:
During this cycle, the rising rate environment has proven global in scope. And interestingly, developed European yields have been a leading indicator of U.S. interest rates.
Regardless of whether the U.S. 30-year prints fresh highs in the coming weeks, following developed Europe higher, the chart of the France 30-year yield highlights a common theme among sovereign yields worldwide—an unrelenting climb higher.
3/ Uranium Rocks!
In an environment where global yields print fresh highs, strength will likely spill over to commodity-related stocks.
That includes uranium.
Below, we have the VanEck Uranium+Nuclear Energy ETF (NLR) achieving its highest level since 2011:
After spending two years holding above a shelf of former highs, NLR completed a multi-year base in June.
As long as this new uptrend in NLR remains intact, this group of stocks will likely continue to perform well for the foreseeable future.
4/ Emerging Markets Doing Time
The trend reversal in emerging markets hasn’t completed, unlike other major indexes.
As you can see, the Emerging Markets ETF (EEM) ran into resistance at the 38.2% retracement of the 2021-2022 decline as sellers stepped in and halted the advance.
This area coincides with the year-to-date highs of January, making it a logical level of resistance.
Notice that momentum didn’t even reach overbought conditions during the most recent advance and has been waning lately, suggesting that the bulls are due for a breather.
All this evidence suggests that emerging markets need more time to consolidate and build up energy before this base breaks higher. However, if and when it does, it should significantly boost international equities and risk appetite. Until then, we could see further sideways action.
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Originally posted 15th August 2023
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