I pointed out in Downtrend but Statistically Oversold Short-Term as Gold Turns Up the US Dollar had reached a statistically oversold level, setting up a high probability for a countrend.
Below is the chart I shared July 17th.
Here's the same chart updated, which July 17th highlighted.
The US Dollar entered a countertrend up after I pointed out it was oversold, but is now under pressure to reverse back down.
It's likely we've seen the short term cyclical counter trend play out, and now the market is pricing in a soft landing for the US economy.
I say this because the US Commodity Index trended up, driven buy an uptrend in crude oil.
US Commodity Index is in an uptrend, suggesting the market continues to price in a soft landing.
Overall, the US Dollar remains in a downtrend, despite an oversold bounce, supporting higher commodity price trends as well as uptrends in economically sensitive cyclical stocks like energy, basic materials, and financials.
The U.S. Dollar Index decline in July and was the second-worst performing market trend behind US Treasury bonds.
A continuation of this downtrend in the US Dollar should continue to support the commodity-related sectors like energy and basic materials.
Energy and basic materials also exhibit the most negative correlation, or sensitivity to the U.S. Dollar Index.
How these markets interact with each other also suggests the market is pricing in a soft landing for the economy. The global capital markets seem bullish on the US economy based on these trends in money flow.
Intermarket relationships are interesting, but they don't always play out as expected, which is why we focus instead on the direction, momentum, and volatility of price trends for actual buy and sell signals, rather than expected intermarket correlations of how these markets should interact with each other.
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