DXY Intermarket: More losses ahead as inflation expectations top out

It’s all about inflation and inflation expectations when it comes to the US dollar. The currency has been steadily losing weight against the basket of currencies, tracking the sharp drop in the inflation expectations from the January highs. 

US 10-yr breakeven inflation and DXY

• Take note of the direct relationship between the inflation expectations and the dollar index. 
• The correlation weakened as the USD ignored the sharp rise in the inflation expectations from June 20 low. 
• However, inflation still remains the main determinant of the exchange rate. Thus, a double top reversal pattern on the 10-year breakeven rate could mean more losses for the greenback. 

US 10-year breakeven inflation rate - double top reversal

A break below the neckline level of 1.78% [Aug 3 low] would confirm the double top breakdown and open doors for fresh round of sell-off in the USD.