We are in the midst of a bull-run and the events over the last ten days or so have sprung up some doubts over the current move with regards to the repercussions of the rise in bond yield and the US dollar.
We included the US Dollar(DXY) chart in the Three Charts for the Week ahead post since DXY moved past its resistance in the week gone by. Let’s take a look at how this had panned out in the past and what are the signals that we can identify in the present.
The chart below tracks DXY and Nifty 50 over the past 20 years. Note that we are looking at the subsequent move in Nifty 50, following the bottoming out of DXY. The dashed lines mark the reversals in DXY, which is what we’re tracking here. Of the seven instances where we’ve seen the bottoming out of DXY, Nifty 50 has continued to rally on four such occasions.
On three occasions the negative correlation plays out as can be seen in the years 2000, 2008 & 2015.
Click on chart to enlarge view.