🐂 Not all bull runs are created equal. November’s AI picks include 5 stocks up +20% eachUnlock Stocks

US Dollar Eyes High-Velocity Breakout as PCE Looms: What to Keep an Eye on

Published 28/06/2024, 04:25 pm
EUR/USD
-
US500
-
STOXX50
-
DX
-
VIX
-
DXY
-

The dollar was pretty flat ahead of the PCE, and it still sits just below that trend line, which could lead to a more significant move after nearly a year of sideways consolidation. The momentum index is positive, and the US Dollar Index could continue increasing.

USD Index-Daily Chart

The dollar could continue higher, especially depending on the outcome in France and the general election in the UK. Yesterday, we saw the spread between the France 10-Year and the Germany 10-Year widen to about 82 bps.FR10Y-DE10Y-Daily Chart

We also saw the 10-year spread of Italy and Germany widen to 1.6%.IT10Y-DE10Y-Daily Chart

These widening spreads suggest some nervousness, which is one reason why the euro has struggled versus the dollar more recently. The euro is nearing the lower end of the symmetrical triangle, making the current support level an important spot.

EUR/USD-Daily Chart

Despite the widening of spreads in Europe yesterday and in the ITRAXX XOVER Index, we didn’t see that happen in the US, with high-yield credit spreads trading flat.CDX High Yield Index-Daily Chart

It was a quiet session, with the S&P 500 rising by just nine bps ahead of the PCE report. Based on estimates, the PCE isn’t expected to be much of an event, and I have nothing to say.

Even the VIX 1-Day hardly moved, rising to just 10.8, which tells you the market isn’t very concerned. It also means that an implied volatility crush isn’t likely to develop tomorrow.VIX-Daily Chart

Additionally, the spread between 1-month at-the-money implied volatility for the Stoxx 50 and the S&P 500 widens to levels not seen since February/March 2022.Implied Volatility for Stoxx 50 and S&P 500

The S&P 500 IV is unresponsive to the move higher in implied volatility in the Stoxx 50, which is odd because while the spread may expand and contract, the two generally at least tend to trend in the same direction. That is not the case for now.S&P 500 and Stoxx 50 Volatility

Going back over the ears, there are plenty of instances where the Stoxx 50 has led the S&P 500, whether it was topping in 2021/22 or rallying more aggressively off the 2022 lows. Indeed, the divergences yesterday look very similar to those seen in late 2021 and the summer of 2023. But that would also mean that the Stoxx 50 would need to keep falling for it to have any actual meaning.EuroStox 50-Daily Chart

Again, the overall market conditions have played out as expected, with reserve balances falling sharply this week and gamma at sharply reduced levels. But to this point, the conditions haven’t been enough.Reserve Balances

I will be away all next week and not returning until Tuesday, 7/8. I will not have time to write these Free evening commentaries. If I get an hour, I will send an update; you will probably hear from me this Sunday, the last time for at least a week. Paying members will be updated tomorrow.

Original Post

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.