Buying the Retreat in the USD, Following the Retreat in Bond Yields
The USD has been following US Treasury yields higher for quite some time, since they started surging in July. 10-year Treasury notes rose to just below 4.90% by September which pushed the USD index DXY to 107.33 points. Although, we saw a retreat in bond yields by the end of last month, which pulled the USD down with it.
The retreat ended and the bond yields resumed the bullish trend, with yields for the 10-year notes surpassing the September high and approaching very close to 5.00% earlier today. The US Dollar Index had a recovery, spurred by both US economic data and US Treasury rates, jumping to about 106.60 points with the 10-year US bond yield having risen to 4.987%, a 1.20% increase on the day before retreating back down to 4.922%.
The unemployment claims declined again, indicating once more that the jobs sector is strong, although the US housing market is sending conflicting signals, with Building Permits above estimates in September at 1.475 million (up from 1.45 million). Housing starts rose to 1.35 million, barely shy of the market forecast of 1.38 million, complicating the story.
Besides that, the dovish views from several Federal Reserve officials reflect a cautious approach, with a reluctance to tighten monetary policy further in the current economic context. So, the decline in bond yields has stopped and and so has the retreat in the USD. We decided two long USD trading signals, short on NZD/USD and GBP/USD .
US September Existing Home Sales
- September existing home sales 3.96M vs 3.89M expected
- August home sales were 4.04M
- Home Sales net change -2.0% vs -0.7% prior
Forward indications of sales continue to show a plunge as mortgage applications fall to a 26-year low and 30-year fixed rates hit 8%.
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