The US dollar continues its ascent after breaking out from a 2-year trading range in response to recent data pointing to “stickier” than expected inflation, resulting in a Fed that probably has to stay put for awhile.
From a technical aspect, an 8-point trading base ($100-$108) means the breakout has a measured move target above the 2022 highs. And there aren’t a lot of visible resistance levels on the chart. However, that doesn’t mean the USD can’t find resistance before the $114 highs are reached.
It’s nice to see a bid under the good old USD, but a rising dollar means a reduction in liquidity.
Along those lines, interest rates continue their ascent, with the 10-year rate briefly pushing above the prior swing high from May 2024 earlier today. Although, as I type this, its pushed back below that key pivot point. So the question going forward will be, is this a breakout or shakeout?
“Shakeouts” are fairly common, where price breaks above or below a key pivot point for a short period before reversing. The term shakeout refers to those who get “shaken out” of their positions when that key pivot point gets violated. Only to see it reverse back in their favor.
A breakout, on the other hand, means that the price move is legitimate and the prevailing trend remains in place.
My guess is as good as yours. But rising rates and USD mean financial conditions are tightening and often has a negative effect on stocks. So far my 2025 prediction (guess, really!), of market weakness early on is playing out.