Market Update: The Interplay of USD, Bond Yields, and Stock Markets Ahead of the Extended WeekendFeb 16, 2024

The recent trading sessions have witnessed the US dollar facing downward pressure as stock markets rallied and bond prices rose, setting the stage for an intriguing dynamic ahead of the extended weekend due to the upcoming US holiday on Monday. This shift marks a notable reversal, erasing some of the movements observed earlier in the week. A key factor in this changing landscape is the correlation between the dollar index (DXY), bond yields, and the S&P 500. Traditionally, the dollar tends to weaken alongside yields when stocks are on an upward trajectory. This pattern might resume if US 10-year Treasury yields dip below the 4.2% threshold and maintain that level. Additionally, recent remarks by ECB’s Villeroy, suggesting an urgency for the European Central Bank to consider a rate cut, could further influence a downward adjustment in yields.

From a technical analysis standpoint, employing the Elliott Wave Theory offers an interesting perspective on the dollar’s trajectory. The DXY’s current intraday pullback from its wave (C) resistance hints at a potential downtrend. However, for a bearish confirmation, a fall below the 103.36 level would be critical. Higher resistance is at the 78.6%, at 105.23.

dxy vs yields vs sp

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