Historical Overview of DJI DXY and GOLD as recession fears hit the top!
Reminder: This article is a summary and shortened version of our 2020 Global Markets forecast for our investors and can not be useful for the intraday traders.
Why markets are talking about a recession? What are the indicators of a potential recession?
Failure to take any concrete steps other than optimistic statements between the US and China may increase concerns about global growth, while recession concerns may increase by the reversal of the US yield curve.
The shift of interest rate difference from positive to the negative region is perceived by the market as the signal of an upcoming recession and a new global crisis. Now that the long-awaited inversion of the two-year/10-year yield curve has actually happened, there is some question whether the Fed will lean harder on the easing side to re-steepen the curve and quash recessionary interpretations.
After the monetary expansion – QE- that started with the 2008 crisis, the US economy recovered and Dow Jones, which reached its historical peak is now having a hard time holding onto its new high.
Considering the trade wars and slowdown in global economies supported by recession fears, with the FED’s rate cut after 10 years, more liquidity = Stock Rally equation may not work as it worked in 2008 Crisis.
Donald Trump’s expectation that China will not respond to the U.S Tariffs and his statement of “if they do more violent response China will get” is increasing the uncertainty.
Historically, the Fed’s interest rate cuts show that the first reaction of the indices to the interest rate cuts that began with the Asian Crisis and Mortgage Crises was negative. – As you can see on the above DJI weekly Chart-
We see that DJI is printing its corrective 4th wave of the previous bullish 3rd wave.
As seen on the above daily chart, 4th correction wave continues to oscillate down by creating a broadening wedge.
As long as the 27400 levels is not exceeded, potential pullbacks could be used as selling opportunities and I expect the decline to continue.
What can be done?
DJI, unless 27400 resistance is exceeded, respectively
and I expect it to retrace towards the formation target of 19,000 level.
What to pay attention to?
Monthly closings above the 27400 would invalidate the Broadening Wedge formation.
What if it breaks above 27400?
We rate this scenario 20% Chance of Possibility.
In this case, DJI is likely to make a new top and complete a Bearish Butterfly Pattern at 28400. That would be our target level to sell the Index with above-mentioned target levels.
Before GOLD, DXY and EURUSD Overview, we want to post another remarkable chart: DJIvsGOLD. Bullish Trend line has been broken. What does it mean? A signa of a big rally in Gold or a signal of an upcoming sell-off in DJI?
What About DXY, EURUSD, GOLD and SILVER?
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