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Andreas Zanin
Analysis | March 12, 2021

The big short trade and yeilds: USD

At present in terms of USD strength and weakness Bond yields are having a big influence as we noted in our report earlier in the week. At present we see the USD as having limited downside and major upside.

“Shares rose on Friday after U.S. President Joe Biden signed a $1.9 trillion stimulus bill into law, and after a dovish European Central Bank meeting prompted a retreat in bond yields and eased global concerns about rising inflation.” (Reuters)

The spike in bond yields has been global but the retreat that Reuters refer to above is minor and US Yields are firm and are far higher than European bonds. A dovish ECB doesn’t ease concerns about inflation which will rise globally and particularly in the US as the stimulus package will add to inflationary pressure moving forward.

T Note 10 Year

The chart below shows support at and so long as we stay above the 1.400 level the USD will be well supported but if we can breakout to the upside above 1.63, we would expect the USD to gain traction to the upside.

In terms of bond yields, the Fed want to keep borrowing costs down by expanding there balance sheet but despite the huge stimulus the MOVE Bond index is moving higher and bond yields generally are firm.

Inflation Expectations

The reason Bond yields are unlikely to fall is due to the fact inflation expectations are at record higher and with good reason with the amount of money that has been and will be injected into the US economy.

 

Dollar Index DXY

Has firmed up this year and looks set to test 94.00 to correct oversold. As we noted in our last post speculators hold the biggest short position since 2011 and we expect it to exit on stop and push the USD up to 94.00

The market remains bearish of the USD but the USD is showing good strength and the risk to reward on USD longs in our view is very attractive in our view.

 

 

Research provided by LearnCurrencyTradingOnline.com

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