Dow Surge Forces Sharp Dollar Losses against Euro - What Happens Next?

A virtually empty US economic calendar allowed currency traders to focus on developments in domestic stock markets, with sharp volatility in the Dow and S&P 500 forcing similarly choppy price action on the day’s forex trading. Overnight futures had the S&P 500 off a dramatic 50 points, but aggressive bulls came to the rescue in the late NYSE session and forced a substantive recovery. There was seemingly little news flow to cause such surprisingly sharp moves. Yet overall market jitters and investor indecision made for incredibly volatile price action across all major financial markets.

US Treasury Bond yields started the morning session sharply lower on overall recession fears, but the late Dow surge has actually left Treasury yields modestly higher through time of writing. Indeed, the yield on the 30-year US Government Bond fell to all-time lows at 4.13 percent through the early going and currently trade at a much more respectable 4.25 percent. All else remaining equal, the higher Treasury yields should theoretically boost the attractiveness of the dollar and make it gain against major forex counterparts. Yet the underlying themes of market risk sentiment and appetite continue to dominate all currency trading. The dollar now rallies whenever the Dow Jones tumbles and pulls back on any major Dow advances. 

Where is the Dow headed? Where is the Dollar headed? Share your opinion with fellow currency traders on the DailyFX Forex Forum EUR/USD Discussion.

Written by David Rodríguez, Currency Analyst for DailyFX.com,  

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