U.S. Yields and Dollar: How Far Can They Fall?
U.S. Yields and Dollar: How Far Can They Fall?
Hey Traders, hope everyone is doing well.
This week is quite an important one, as we’ve already had a few key figures from the U.S. jobs data. As you know, it’s all about speculation on whether the Fed will cut rates by 50 basis points or just 25. Everyone is waiting on Friday’s NFP numbers, but what will really be crucial to watch during this event are U.S. yields.
If you watched my interview with Blake earlier this year, then you know I’ve been looking for lower U.S. yields. From an Elliott Wave perspective, I was expecting a Wave C drop that could be the final leg of this corrective retracement. The key is to understand the structure of Wave C before we can say that the decline in yields is really coming to an end—perhaps when the Fed has cut rates a few times and the market thinks the cuts are done.
Looking at the substructure of this Wave C drop from April of this year, we still don’t have five subwaves to end Wave C. The drop from 4.7% isn’t showing a five-wave decline yet, and the current consolidation ahead of tomorrow’s NFP report seems to be a 4th wave within the ongoing Wave C. So in my view, there is still room for more weakness in U.S. yields, possibly down to 3.25% or 3.5% on the 10-year, where the market could stabilize and move sideways for a while. But for now, we have to respect what the market is doing.
To repeat, the U.S. yields’ decline, based on Elliott Wave terms, is incomplete. So, what does this mean for the dollar? We’re seeing a very nice break of the red trendline connected from the 2023 lows, which is a clear signal suggesting the DXY could head lower with Wave C.
The question remains, what happens later this year when this Wave C ends? I think we could see significant changes across various asset classes, including stocks, especially if the S&P 500 breaks to new all-time highs, possibly near 6000. I also discussed this in my latest interview with Blake last week—check out the link below.
Have a nice day, and talk to you soon.
Grega
Intreviews with Blake:
May, 2024 https://youtu.be/i57dIH23y_Q
August, 2024 https://youtu.be/QgPA7daSTPY
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