March 2, 2023

Why USD and SPX500 Are Both Buys

Frank Cabibi

USD's full news week will end with PMI numbers on Friday. So far, we have seen mostly dollar strength and a 1% decline in the equities market. In a mixed market like this one, it's possible to play both sides of the coin in terms of risk. Traders will have to be more timely on entries though. Here is why both the USD and SPX500 could be buys going into next week.

Bullish Case

There are a handful of reasons for the Fed to remain hawkish on the dollar. For one, jobless numbers came out less than expected which is a good sign for the economy. That is good for the USD because it encourages the Fed to keep focusing on bringing inflation down.

USD jobless claims beat expectations

On the other hand, strong economic news like falling jobless claims is good for stocks as well. Claims fell for the fourth week in a row, suggesting a healthy path towards a soft landing as the Fed planned.

Consumer confidence fell this week too, putting pressure on the stock market and pushed dollar bears aside. On top of that, the 10-year bond yield rate jumped to over 4%.

EdgeFinder Data on US10Y

Longer term, it looks like the dollar is going to remain strong. The EdgeFinder's growing interest on yield rates has also brought a lot of attention to the dollar. March is a historically good month for the dollar at a +5 Buy.

Trade Setups

SPX500 is on some key support which is the 200 DMA and a 61.8% fib retracement level. This zone can serve as the decision factor for the stock market. A break under this area probably means another leg down towards the $3700s.
DXY broke under a month long trend line which suggested a weaker dollar. However, this could have been a bear trap as price flew back up towards the highs of late February.

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