Global Market Shifts: A New Era for Emerging Markets?
As we step into 2025, the US stock market is poised to wrap up two remarkable years. But will this new year bring a reversal of fortunes beyond American shores? To explore this possibility, let’s shift our focus to the Emerging Markets ETF (EEM) and the iShares China-Large-Cap ETF (FXI).
The Dollar’s Dominance
When analyzing EEM and FXI, we must first consider the technical landscape of the US Dollar Index (USD). The two ETFs are closely tied to the USD, with a strong negative correlation. Any assessment of these foreign ETFs must be accompanied by a cautious outlook for the USD.
A Decade of Dollar Strength
The USD began its upward trajectory in 2011, peaking in 2016. From 2015 to 2022, it consolidated in a sideways, bullish pattern before breaking out in 2022. After reaching a high in September 2022, the USD plateaued before surging again in September 2024, racing from $100 to a recent peak of $108.
Chart Resistance and COT Insights
The USD appears to have completed a five-wave advance, hitting chart resistance in the $108 region. Notably, the Commitment of Traders (COT) data turned bullish in September but has since neutralized. In the coming weeks, it’s possible the COT data will shift bearish on the USD.
A Peak in Sight?
The stage is set for a potential USD peak. As the dollar’s strength begins to wane, emerging markets may be poised to take center stage. Will 2025 mark a turning point for EEM and FXI? Only time will tell, but the technical signs are aligning in their favor.
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