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The Dow’s key level and the dollar: Here's what could drive markets on Wednesday

Dollar and Dow breakout: Here's what could drive the markets Wednesday
Dollar and Dow breakout: Here's what could drive the markets Wednesday

As stocks notched narrow losses in the first session after a three-day weekend, here's what Evercore ISI head of technical analysis Rich Ross is looking for on Wednesday.

Interest Rates

Even as equities have enjoyed a great five months, and as the Federal Reserve hikes its interest rate target, longer-term bond yields have slipped this year. Some have gone so far as to call this a signal that the market rally is on shaky footing. But Ross sees a rate rebound around the corner.

The 10-year yield is "sitting on key support at the 200-day moving average around 2.2" percent, Ross said Tuesday on CNBC's "Trading Nation." "My call is that we hold, and we get a rally back up to 2.31, 2.40" percent.

This will "keep the reflationary narrative alive," Ross added, referring to market sentiment suggesting that inflation is set to tick higher.

Dow Breakout

After strong performance in the prior week, the Dow Jones industrial average is in "an outstanding technical position," Ross said.

However, the index has "yet to push out to a daily closing high above 21,000," he added on Tuesday afternoon. "I'm looking for a textbook close above that 21,000 level to set the stage for another 550 points of upside in the Dow."

At the close, Ross got his wish: The Dow finished at 21,029.47.

The Greenback

After surging following the election of Donald Trump, the U.S. dollar has been another surprise loser this year. Unsurprisingly given his call on interest rates, Ross also sees this trade turning around.

The dollar index, which compares the value of the dollar to a basket of currencies made up predominantly by the euro, has "pulled back to a key area of support at the 100-day moving average," Ross said. "In addition, in each of the last two years, the dollar index has bottomed in May and gone on to have a nice rally from there."

"I think history repeats itself; we want to be a buyer of the dollar index in May," Ross said.