Inverted Yield Curve Will Keep Volatility Alive

Dave Floyd Aspen Trading Group

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.

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.
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.

Author

Dave Floyd

Aspen Trading Group

If he lived anywhere but Central Oregon, where the trails of the Cascades mingle with the warm sunshine and fresh air of the high desert, Dave Floyd would probably be one of those guys who lives and breathes trading and analysis 24/7.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.