Another life hack on the topic of intermarket analysis. For most currencies, crypts, stock indices, raw materials, it matters where the US dollar index (DXY) moves, which is based on the EUR / USD currency pair.
A month ago, we published a post on this currency pair for the long term. So far, everything is developing in line with expectations, but there are a number of reasons for some reasoning:
1) there is a benchmark as the nearest resistance, a range of 1.2450-1.2550 (2018 highs), which we can reach on the horizon of the next month or two. It is likely that it will not be possible to overcome it the first time, you will need to look very carefully near these levels, since there is a likelihood of a reversal or at least downward correction
2) Positioning of participants in the foreign exchange market – the maximum volume for the last 9 years of open positions for decline in the US dollar index. Will they all earn money? I doubt very much … and if a fix begins, even a partial one, then this is a lot of fuel for the reverse movement.
3) seasonal factor – from our own observations, if the end of the year passes on such a positive wave, then usually the correction begins in the period from mid-January to the end of February of the next year
4) sentiment – positive sentiments in relation to risky assets are already approaching extreme. In no case do I want to offend anyone, but when “girls from insta” or representatives of the beauty industry with a smart face talk about how you can make a lot of money investing in stocks, it is very reminiscent of the story of Morgan and the shoe shine on Wall straight
5) the fear index (VIX) is approaching its historic lows, also as a reason to think about it.
6) !!! I would especially like to pay attention to the fact that the upcoming redemption of US government bonds, for the first quarter of next year alone, the volume is about 4 trillion dollars! This is a lot, even despite the fact that part of the debt will be refinanced through the issue of new bonds, BUT in fact this is the withdrawal of currency liquidity from the system, the opposite process to what is happening now, that is, the demand for $ and, as a result, the sale of everything else. I will quote Gregoriy Beglaryan: “the vacuum cleaner turns on again, the main thing is not to drag the markets into the waste bin”))
Therefore, summing up, we can say that in order to continue to grow risky assets at such a fast pace, it is necessary to throw off “extra passengers”, make a sensible correction, since the majority in the market cannot be in the black all the time, on the contrary, the minority earns from majority. I do not urge to consider the short momentarily, no, for this there should be signals and confirmation, which are not yet available, but you should be careful.
I think we have a maximum of 1-2 months before the market sentiment changes. As you know, there is only one step from euphoria to panic, and anything can be the reason for this, regardless of how much money has been printed and continues to be printed.
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Good luck to all!