$US10Y and $DXY Divergence and correlation breakdownRecent weeks we might have missed some underlying churn in the market dynamics. Recently there has been a clear visible divergence in TVC:US10Y and TVC:DXY in midst of all the noise about the tariffs. Usually with rising TVC:US10Y yield the US Dollar index TVC:DXY rises with it as visible in the chart below. In this blog we have been following the downward slopping channel in the TVC:US10Y and the yield has remained within this tight range of the channel. In our last blog on 02 May 25 we called for a lower TVC:US10Y @ 4%. Seems that call was incorrect and I was wrong. But in this space, we have been asking for a lower $DXY. The TVC:DXY chart is making lower highs and lower lows and in a verge of a breakdown.
So we have higher TVC:US10Y which is capped to the upside @ 4.6% visible from the upper end of the downward slopping channel and we have TVC:DXY making lower lows but the correlation is broken in the recent weeks as shown in the daily chart below. This kind of unpredictable market behavior it’s difficult to forecast equity market direction. TVC:US10Y seems to create headwind for equities but the lower TVC:DXY is good for risk assets like CRYPTOCAP:BTC , SP:SPX and $QQQ. Hence this push and pull will keep the markets range bound for now.
Verdict : TVC:US10Y currently at top of the range, downside more likely ; TVC:DXY continues to struggle and in penalty box.
