Markets are slow ahead of the FOMC meeting when traders will pay attention to any new hits about the tapering, so US bond market should be monitored very closely. On the 5-year T-notes we can see a bullish pattern; five wave up and three waves down. That’s 8-leg cycle that is pointing higher, back to July highs.
5 year T notes 4h Chart: Elliott Wave Analysis
5 Year T Notes
What is the 8-leg cycle?
It’s a 5-3 structure, where the first five waves are called an impulsive move, and three wave set-back is corrective or contra-trend move. Impulses show direction of a trend or temporary change in trend, like in our case. So because of five wave rally we think that current trend is bullish, that’s why we are looking higher on 5-year notes. This view remains valid as long as market trades above latest low.
So, if we consider bullish outlook for US bonds and current positive correlation with the S&P then recovery on 5-year notes will be supportive for the stock market.
5 year notes vs. S&P 4h
If these two markets will stay in positive correlation then expect to see a fall on EURUSD. Keep in mind that correlation between S&P and EURUSD is negative.
EURUSD vs. S&P 4h