The US markets closed Thursday with a slight rise of 0.2% in the S&P500. Asian markets showed mixed dynamics on Friday morning. The currency market also has a mixed performance, which, however, has several warning signs.
A so-called golden cross occurs in the DXY Dollar index, where the 50-day simple moving average tops the 200-day one. This is an influential technical signal that often triggers an independent market reaction. In addition, we see further confirmation of the bullish sentiment for the USD, as the price is above the mentioned moving averages, unlike the case with a similar situation in May.
The Dollar index is at 93, in the area of this year’s highs. A further rise would be a confirmation of an exit from the prolonged consolidation, which could trigger an impressive reassessment of the markets, forming a new positional trend after the side range.
A strengthening Dollar is usually accompanied by increasing pressure in the stock markets. We have seen a lasting exception to this trend since 2018 with Trump’s tax reform, when which capital inflows into the USA have intensified. Now the movement is instead the opposite, and there is more and more talk of tax hikes. The strengthening dollar in recent months reflects the pull into defensive assets and not at all a capital flow into US equities from other markets.
The persistent strengthening of the dollar against the Euro is also worth noting. The EURUSD has been going down in small steps for the last four weeks, and before that, we saw a solid downward momentum from the tops. Slipping to 1.1760, the Euro against the Dollar has been at the lows since late March. Since last September, EUR buying has intensified on declines into the 1.1630-1.1700 area.
A break of the sideways trend in EURUSD would clear the way for a rapid decline in the pair to the 1.1200-1.1400 area and put the fall scenario under 1.0700 – the area of the March 2020 lows – back on the agenda.
Strictly speaking, the technical picture is not a verdict for the Euro as there were plenty of false signals in history.
A “death cross” is forming in the pair, which indicates the potential for impulsive growth of the Dollar in the coming days. However, it is worth paying extra attention to the EURUSD dynamics in the coming days and hours not to miss forming a big trend for the Dollar. Up or down, we may find out definitively before the end of next week.
