The USD is bouncing back

Bond Yields Dive, USD Index Rallies

Posted Wednesday, August 28, 2019 by
Shain Vernier • 1 min read

Once again, the story on Wall Street is plunging yields for U.S. Treasuries. A bit earlier, the U.S. 5-Year Note Auction was held, with bond yields crashing from 1.824% to 1.365%. This move represents an almost ½ point adjustment and has deepened concerns over a pending recession.

The rush to bonds and safe-havens has most of Wall Street calling for a correction in U.S. equities. This has not been the case today, as the DJIA DOW, S&P 500 SPX and NASDAQ are all in the green. Further, the USD Index is knocking on the door of monthly highs above 98.000. For the time being, the downtrend in bond yields is being largely ignored by the markets.

Bond Yields Down, USD Index Up

September USD Index futures are in positive territory on the session, pushing rates above 98.000. At this point, it appears as though many traders are betting that any dovish moves by the FED have already been priced into the market.

September USD Index Futures (DX), Daily Chart
September USD Index Futures (DX), Daily Chart

Here are the levels to watch in the September USD Index:

  • Resistance(1): Psyche Level, 98.500 (not pictured)
  • Support(1): Bollinger MP, 97.705
  • Support(2): Daily SMA, 97.675

Overview: Various inverted bond yields curves are beginning to dominate headlines as both a market and recession predictor. In fact, the 30-Year T-bond has fallen to all-time lows beneath 2% and the popular 10-Year T-bond is at 2016 levels. In addition, 10-year yields are trading beneath the 3-Month T-Bill. 

If the current action in the debt market is any indication, trouble for equities and the U.S. economy may be right around the corner.

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