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Bearish Extension


Recent Lows Still Intact


(H2) Approaching The Key Bear Trigger


Fresh Multiyear Lows Once Again


BLOCK: Large 3M SOFR Fly

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  • The DXY index broke below its 50DMA support this week; the gradual consolidation in USD leaves the door open for new highs in EM equities in the short term.
  • In the past year, the elevated uncertainty over the economic outlook and USD strength have been weighing on EM risky assets, which have constantly been testing lower highs since their peak reached in February 2021.
  • As a reminder, the rise in Covid uncertainty, political instability in some EM markets and the hawkish Fed had supported the US Dollar in H2 2021; DXY index reached a high at 97 in the end of November before consolidating slightly lower in recent weeks.
  • The probability of 4 Fed hikes in 2022 has been gradually rising in the past few months, approaching 80% in January.
  • Even though more rate hikes for this year should increase the preference for the USD in the medium term (especially against Euro and Yen), the ‘big miss’ in Payrolls on Friday could increase the selling pressure on the USD in the near term, therefore supporting EM equities.
  • EM equities (EEM) broke above their 50DMA yesterday, next resistance to watch on the topside stands at 50.58 (100DMA), followed by 52.10 (200DMA).

Source: Bloomberg/MNI