Emerging Markets Are Breaking Higher; Be Aware Of Lower USDollarEmerging markets, represented by the EEM chart, have been trending lower since October 2024 in what appears to be a complex W-X-Y corrective pattern. Meanwhile, the US Dollar Index (DXY) experienced a strong rally, driven by Trump’s victory in the US elections. However, the rally formed a wedge pattern, which suggests that its upside momentum may be coming to an end.
Why is the correlation between EEM and DXY important? If the Trump administration pushes oil prices lower, inflation expectations could also decline. This would likely lead to lower interest rates, which in turn could weigh on the USD. In such a scenario, capital may flow out of the US and into emerging markets.
Now that EEM is recovering and breaking above a key channel resistance, it signals that bullish momentum is returning. If this trend continues on EEM to 2024 highs, then DXY could decline to the 105–103 range—or possibly even as low as 100.