$US10Y and $DXY Divergence and correlation breakdown

Recent weeks we might have missed some underlying churn in the market dynamics. Recently there has been a clear visible divergence in US10Y and DXY in midst of all the noise about the tariffs. Usually with rising US10Y yield the US Dollar index DXY rises with it as visible in the chart below. In this blog we have been following the downward slopping channel in the 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 US10Y @ 4%. Seems that call was incorrect and I was wrong. But in this space, we have been asking for a lower DXY. The DXY chart is making lower highs and lower lows and in a verge of a breakdown.

So we have higher US10Y which is capped to the upside @ 4.6% visible from the upper end of the downward slopping channel and we have 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. US10Y seems to create headwind for equities but the lower DXY is good for risk assets like BTC, SPX and $QQQ. Hence this push and pull will keep the markets range bound for now.

Verdict : US10Y currently at top of the range, downside more likely ; DXY continues to struggle and in penalty box.