News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Wall Street
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
GBP/USD
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
More View more
Real Time News
  • What is the outlook for financial markets ahead of the first presidential debate and how are Democratic nominee Joe Biden and President Donald Trump doing in the polls? Find out from @ZabelinDimitri here:https://t.co/QQwAZTxZFg https://t.co/MSOw9DeSxe
  • Wall Street Futures Update: Dow Jones (+0.415%) S&P 500 (+0.417%) Nasdaq 100 (+0.466%) [delayed] -BBG
  • - Trump popularity slowly returning despite a surge of US-based coronavirus cases - Democrats drafting $2.4 trillion aid package as urgency for more stimulus swells - #AUDUSD testing key support at 0.7018 – will a break here accelerate the selloff? https://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/asia_am_briefing/2020/09/24/AUDUSD-at-Key-Support-Trump-Popularity-Edging-Up-Despite-Virus-Spike.html
  • Looks like the #nifty50 is heading for its worst week since early May (-6.08%), over 4 months ago, granted we still have Friday's session left $USDINR has also been climbing lately Might this continue? Stay tuned for a technical special later today! https://t.co/1vdbgAWs0s
  • The US Dollar could gain as it forms bullish technical formations against the Singapore Dollar and Malaysian Ringgit. USD/PHP may have bottomed, will USD/IDR rise next? Find out from @ddubrovskyFX here:https://t.co/3UIKmbLIvD https://t.co/vdL3w1KxIZ
  • Australian Dollar Outlook - via @DailyFX: AUD/USD bulls search for support around two-month lows as market sentiment seemingly improves, but the Aussie could remain under pressure as volatility lingers. Full Analysis - https://www.dailyfx.com/forex/market_alert/2020/09/24/australian-dollar-outlook-aud-usd-drops-to-fresh-two-month-low.html $AUDUSD $AUD #FX #Forex #Trading https://t.co/HJqlMqAvt2
  • $USDCNH reversing lower after bursting over 1.5% from the yearly low. Could this be indicative of firming market sentiment? https://t.co/9CDc2Lukuc
  • Heads Up:🇬🇧 Gfk Consumer Confidence (SEP) due at 23:01 GMT (15min) Expected: -27 Previous: -27 https://www.dailyfx.com/economic-calendar#2020-09-24
  • IBEX 35 price action breaks down amid recent market volatility. Get your market update from @FxWestwater here:https://t.co/MX2O5yrAMy https://t.co/po5awA5AZP
  • FTSE Russell says China will be included in global bond index, as widely expected $CNH
Yields Surge as S&P Tumbles - Why's it Bullish for the Dollar?

Yields Surge as S&P Tumbles - Why's it Bullish for the Dollar?

2013-06-25 15:40:00
David Rodriguez, Head of Product
Share:

Summary: US Treasury Yields have surged as the S&P 500 has tumbled, and we think this has significant implications for the US Dollar. Why?

Earlier this month our Senior Market Strategist Kristian Kerr wrote an excellent article on the significance of the “Bond Bubble”, and it was prescient—we’re currently seeing an unwind of massive bets on bond markets.

To summarize the argument: unprecedented Quantitative Easing from the US Federal Reserve and global central banks drove record capital flows to bond markets and built a massive bubble. The unwind can and likely will have far-reaching effects across financial markets.

Why is this such a big deal? Let’s look at recent price action in US Government Treasury Yields and the S&P 500. Higher yields mean lower prices in bonds, and the fact that the 10-year US T-Note Yield saw its largest single-week surge in a decade is a very big deal. The S&P 500 simultaneously tumbled.

Treasury Yields are Surging as S&P 500 Tumbles – That’s NOT SUPPOSED TO Happen

forex_us_treasury_bonds_s_and_p_500_tumbles_and_us_dollar_surges_body_Picture_1.png, Yields Surge as S&P Tumbles - Why's it Bullish for the Dollar?

Data source: Bloomberg, Chart Source: R

Here’s why this isn’t supposed to be happening: the US Treasury Bond/Note/Bill is theoretically the world’s safest benchmark asset, and it’s historically done well in times of financial market turbulence. The fact that it isn’t shows that this is quite likely the Bond Bubble burst we’re long feared.

A financial market panic could follow, and it would signal an indiscriminate unwind of leveraged instruments across the board. Or in plain English: what’s gone up will come down.

It’s helpful to take a look at financial market volatility prices as another key reason why things could get far worse before they get better.

Forex and S&P 500 Volatility Prices have Surged, but Could go Far Higher

forex_us_treasury_bonds_s_and_p_500_tumbles_and_us_dollar_surges_body_Picture_2.png, Yields Surge as S&P Tumbles - Why's it Bullish for the Dollar?

Data source: Bloomberg, CBOE; Calculations: DailyFX; Chart Source: R

Why are the bond bubble and forex/S&P 500 volatility prices so critical to the US Dollar?

Put simply, volatility prices serve as an excellent proxy to investor fear. (That’s why the S&P 500 VIX is also known as the ‘Fear Index’) If they’re headed sharply higher, it could signal the start of a massive market deleveraging.

The Dow Jones FXCM Dollar Index (ticker: USDOLLAR) trades near its highest since 2010 as our DailyFX 1-Month Volatility Index is only at its highest since mid-2012. Its longer-term correlation suggests that, all else remaining equal, the USDOLLAR should be higher.

Dow Jones FXCM Dollar Index (ticker: USDOLLAR) has Surged as Forex Volatility Prices Rise

forex_us_treasury_bonds_s_and_p_500_tumbles_and_us_dollar_surges_body_Picture_3.png, Yields Surge as S&P Tumbles - Why's it Bullish for the Dollar?

Data source: Bloomberg; Calculations: DailyFX; Chart Source: R

Record-low interest rates in the US have made the Dollar an investor favorite to fund trades in other markets. i.e. many have borrowed in USD to buy the S&P 500 and other speculative assets. If those trades are unwound, the Dollar could surge.

I wrote yesterday of trading strategies I think will do well in highly volatile markets. I’ll continue updating changes to conditions via my regular reports—follow future updates via my e-mail distribution list and intraday via Twitter.

Forex Correlations Summary

View forex correlations to the S&P 500, S&P Volatility Index (VIX), Crude Oil Futures prices, US 2-Year Treasury Yields, and Spot Gold prices.

forex_us_treasury_bonds_s_and_p_500_tumbles_and_us_dollar_surges_body_Picture_4.png, Yields Surge as S&P Tumbles - Why's it Bullish for the Dollar?

Data source: Bloomberg. Chart source: R

SEE GUIDE ON READING THE ABOVE CHART

--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com

Receive future special reports on the Australian Dollar and other studies via this author’s e-mail distribution list with this link.

David specializes in automated trading strategies. Find out more about our automated sentiment-based strategies on DailyFX PLUS.Contact and follow David via Twitter: https://twitter.com/DRodriguezFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES