USD as a 'Buffer Strategy' Post Interest Rate Hikes

Tech Stocks Significant Correction Move & Yields on the Rise 

 

With the USD softness at this time. The way we approach its weakness for now is quite independent as it would likewise be used as a buffer strategy that once the FED raises rates the USD would be coming from its low pre-adjusted for inflation levels the 4th quarter 2018. 

Besides with the USD - DXY failure to break through its 3 month MA with barely a low touching at 93.85 have recovered rather quick enough post #ADP data that registered a high at 96.12 for the week from a corrective session low at 95.00 basis pt. Likewise triggered the abrupt rise of US yields well above 3.10 levels.
 
And this would be well in line with our projection for 10 year US yields to stay above 3% and relatively closer to 3.10/35 presumed point range heading into the end of 4th quarter 2018 & into the 1st quarter 2019. But was actually surprising to see gains as early as the first week of October for yields to cover 10 basis breaking 3.10 levels then. Thus Equities tend to be on the defensive moving forward.

 

Even when the major indices like the DOW registered record levels, the accelerated US 10 year Treasury notes at 3.22% along side the 30 year bond yield at 3.33% have initially capped equities continued run. 

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EURO Suffers - Italy Defy EU Zone Rules, Supports Higher USD (DXY) After FED Rate Hike

Euro drop to 1.1582 ( tech pattern in the making) as the USD remain buoyant from its three month moving average set at 93.75; is now above our 95.05/10 core basis level currently at 95.30 which is a 1% gain for the week. 

Support for the USD is coming from both directions with the recent Fed rate hike. Not to mention, a greater portion of the total amount of funds repatriated back to the US which have found a place to be parked at with the expectations of higher yields in the near future. 

And now with the EU battle over fiscal policy with Italy has intensified after the government budget deficit at 2.4% of GDP which basically is interpreted to defy EU rules. Especially when European Union inflation rates are ever increasing would be a hard sell for Brussels to accept. Allowing European equities to trade in the red, decoupling from risk appetite. 

After the Fed's move on rates, the recent decline in US equities have proven to be the fact that these market adjustments would indeed be part of market volatility. Although, some analyst still may expect a dramatic decline which may not occur for now. Since the relative market corrections  from the previous have given bulls a reason to buy into dips for positioning especially coming into the 4th quarter trading. 

Update as of 10.02.18 : Previously stated: 
How often do we see, #USD #EQUITIES #OIL Moving in the same direction. 

#DOW Hits Record Highs  Buying on dips is back on play! 
Watch for #Earnings Season real soon!

With that said, the USD Index needs to hurdle above the 97.00 levels to be more convincing, but would take a considerable period of time to achieve nearest to this level. However, with the next schedule of rate hikes; the dominant trajectory for the USD remains intact. Overtime it may have some relative declines, a misdirection would not be discounted along the course of its price objective heading into the December schedule and the first two quarters of 2019.