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Are the US Dollar Bulls Waking Up?
Written by: PaxForex analytics dept - Tuesday, 24 April 2018 0 comments
The US Dollar has been under pressure for several months and just as many may have thrown in the towel and gave up, a lifeline has been thrown into the mix: 10-Year US Treasury Yields. For several weeks traders have been watching yields increase and now they are within a few basis points of breaking out above 3.0%. Yields move opposite of prices which means that an increase in yields translates into a decrease in prices. Once the 10-Year US Treasury successfully moves above 3.0%, many traders expect a rally and much higher yields to come.
The last time the 10-Year US Treasury Yields traded above 3.0% was in 2014. Higher yields usually attract foreign capital, but just because yields increase doesn’t automatically result in the US Dollar appreciating. It is a reason for US Dollar bulls to be slightly more optimistic. The US Federal Reserve is expected to increase interest rates at least two more times in 2018 which should add to bullish pressures in the medium-term. Over the past 60 days, the correlation of the US Dollar and 10-Year US Treasury Yields was positive.
The biggest focus in the forex market will shift to the EURUSD currency pair. The Euro has enjoyed a rally which lasted five quarters and therefore it is natural that the advance is now exhausted. Short-term this could push price action to the downside. The economic recovery in the Eurozone is also showing signs of a slowdown. Economists expect the Eurozone economy to grow at a much slower pace which could be enough of an excuse for forex traders to lock in profits and evaluate this trade again.
The second-quarter of 2018 will offer forex traders many great trading opportunities, not just in the EURUSD but across the spectrum. There are many developing geopolitical events as well as economic adjustments in the mix which will move price action. Open your PaxForex Trading Account now in order to access the world of forex and take full advantage of the countless trading opportunities which await you.
Any short-term rally in the US Dollar will be likely the result of short-covering as forex traders are positioned for more USD weakness ahead. The latest CFTC data confirms this as it shows large net short positions in the greenback. The options market shows bearish sentiment for 10-Year US Treasury Yields and this combined with the potential of a short-covering rally in the the US Dollar could combine for a healthy advance in an otherwise bearish scenario. This could be a great opportunity to lock in profits and enter new positions once key support levels will be tested. Are the US Dollar bulls waking up or will this be a short-term counter-trend move? Here are three forex trades to profit from a pending breakout above 3.0% in 10-Year US Treasury Yields.
Since mid-February this currency pair has recorded a series of lower highs which suggested that the strong rally in the EURUSD is losing strength. Following the breakdown below its horizontal resistance area and another failed attempt to push above it, price action has been driven by
bearish momentum. A cross in 10-Year US Treasury Yields above 3.0% could push the EURUSD into the upper band of its horizontal support area and also test the key 1.2000 level. Forex traders are advised to sell the rallies in the short-term.
The CCI has plunged deep into extreme oversold conditions below 100. This indicator is set to resume its slide as the EURUSD correction is likely to last until support levels are tested. Earn over 500 pips per month with the PaxForex Daily Fundamental Analysis and get the most important fundamental trade set-ups from our expert analysts every day.
The USDJPY already completed a breakout above its horizontal support area which resulted in a momentum change from bearish to bullish. The sharp advance has been ignited by a short-covering rally in a long-term downtrend and could be limited until the USDJPY will reach its horizontal resistance area at which point a new analysis is required. Forex traders are recommended to buy the dips in this currency pair until bullish momentum is exhausted.
The CCI exploded into extreme overbought conditions and while a small retracement is likely, this technical indicator is expected to remain in overbought territory until price action will run into its next resistance level. Make sure to stay up-to-date with the PaxForex Daily Forex Technical Analysis section in order to receive the most interesting technical trading recommendations which will boost your profits.
The above two trading recommendations favor the US Dollar bulls, but here is one important hedge which forex traders should take in order to protect their forex trading account. The USDCHF advanced into its horizontal resistance area from where bearish sentiment increased. Forex traders may opt to take profits after a solid advance which will push this currency pair back down into support levels. Forex traders should spread their short entries inside the horizontal resistance area.
The CCI is trading in extreme overbought conditions, but this momentum indicator has started to retreat from its highs. A move below the 100 mark could intensify selling in the USDCHF. Make a deposit into your PaxForex Trading Account today and take advantage of this trade before the next move to the downside will materialize. Diversify your Bitcoin and Ethereum holdings into the forex market and earn more per trade at PaxForex.