Elliott Waves: Dollar Can Recover As 10 Year US Yields Eyeing 3.9-4%

Hello Traders, and welcome to another piece of free analysis at ForexAnalytix.com. The market has been in recovery mode since mid-September, which is quite intereting, as the Fed decided to cut rates by 50 basis points back then. It turned out to be a "buy the rumor, sell the news" situation because most of the dollar's weakness and lower US yields had been based on speculation about the Fed's rate cut. Now that this has happened, we are seeing the opposite reaction.

Looking at US yields, we see a broken trendline connected from the June highs, indicating that we are now in a wave four, which suggests we are in a consolidation phase. And there's still room for yields to reach 3.9% or 4%. It's also important to keep an eye on the Dollar Index and potential higher recovery due to its strong correlation with US yields.

If you closely examine the 4-hour time frame and the Elliott wave pattern on the Dollar Index DXY, you'll notice a bottom formation caused by an ending diagonal in the 5th wave. However, it's crucial to understand that we've only seen one leg up from the lows, meaning this is just the first part of a higher-degree three-wave rally. This rally could extend up to the 38.2% or even 50% retracement level of the decline from June, indicating more dollar strength ahead.

This could also create opportunities on the short side of other major currencies, particularly the pound, which has been under significant pressure today due to Bank of England dovish policy remarks.

The key question that remains is whether stocks will be able to withstand the current dollar strength or if we will see some form of risk-off response.

Trade well,

Grega

Forex Analytix