Wednesday August 14, 2019 - 12:48:40 GMT
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Forex View: Stocks and Bonds Driving the US Dollar
Equities and fixed income markets continue to be inextricably linked. When stox sell off, money has to go somewhere. Usually it gets parked in government bonds. When bond PRICES RISE their YIELDS fall. In the case of the USD, lower interest rates makes the USD relatively less attractive.
Thus falling U.S. equities are a positive for EURUSD and negative USDJPY. On the other hand, rising stocks are a EURUSD negative and USDJOY positive. Keep in mind this relationship does not always work, but when it does you can use it to your trading advantage.
Today the focus is on the 10-yr-2yr bond spread. It has been especially volatile today. At the moment, it is flirting with parity. When the yield on two year funds rises above the 10-yr yield some take this as a recessionary omen.
A "normal" yield curve is upward sloping.with longer dated maturities higher than shorter maturities due to the time preference for money. However traders say that an inverted yield curve has predicted 20 of the last 8 recessions. So take this "predictor" with a grain of salt.
Once again keep an eye on stox today and make note of how U.S. stock prices are impacting forex markets, especially EURUSD and USDJPY.
John M. Bland, co-founder
Global-View.com and the orginal forex forum
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