Inverted Yield Curve Will Keep Volatility Alive
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Good Day Traders.
Now that the dust is settling after a VERY wild week of trading, it’s time to survey the landscape and get a handle on what might be coming next.
As I have mentioned in previous updates, charts alone do not often provide enough insights to gain an edge. Do not get me wrong, charts remain my primary indicator from a timing perspective however they rarely tell the whole story. Quantitative and fundamental analysis will often highlight key data points that either refute or confirm what the charts show.
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Inverted yield curve: the longer a yield curve stays inverted, the higher the likelihood of a recession within one-year. While this does not mean that returns (mainly equity) will be lower, it does (historically) mean that price action across all asset classes will be very volatile.
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US data such as the unemployment rate, ISM Manufacturing and Consumer Confidence are at levels where ‘perfection’ is priced in. This is a bit dangerous because ….. and lends itself to the markets being disappointed going forward.
Based on these above data points and the technical backdrop, we see a weaker Dollar Index (DXY) looking ahead. Naturally this would mean a higher EUR/USD.
The charts below highlight where prices are likely to be heading looking in the days/weeks ahead.
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