US 10YR Yield: A Possible Correction Ahead?
US 10YR Yield has reached a yearly high at the 3.200% earlier this month. From the new high, the price retraced and retested the support level of 2.700%. In the 4-hour chart, we can spot a potential head and shoulder pattern. Therefore, we will observe if the price will break below the neckline area in the near future. If the neckline is broken, then we expect a period of correction for the US 10 YR yield.
What does it mean for the market if the yields start to fall?
Intermarket Relationship (Theoretical Explanation):
Yields and Bonds: Inversely Correlated *Yield can be considered an interest rate. Because most bonds pay a fixed interest rate, investment in bonds becomes more attractive if interest rate falls. Therefore, two are inversely related.
Yields and USD: Positively Correlated *A rising yield indicates USD appreciation while a fallling yield indicates USD depreciation. We can relate this relationship with the recent FOMC raising the interest rates, which has reduced the money supply to preserve the value of USD. As a result, yields rose and bond prices fell, and USD currency became more attractive to hold due to reduction of money supply.
Yields and Commodities: Inversely Correlated *If yields increase, USD will appreciate; therefore, an expensive USD would lead to a fall in commodities prices because most of the commodities are priced in USD.
Yields and Stock Market: Inversely Correlated *High yield environment leads to expensive loans, which discourage individuals from investing.
Therefore, if yields enter into a period of correction, we first expect the USD, or the US Dollar Index to fall, which would lead EURUSD, GBPUSD, AUDUSD, etc to rise and USDCAD, USDCHF, etc to fall. From the charts of those USD pairs, we can spot that the retracements have already begun from their recent highs and lows.
Check out our ongoing trading ideas below :)
What does it mean for the market if the yields start to fall?
Intermarket Relationship (Theoretical Explanation):
Yields and Bonds: Inversely Correlated *Yield can be considered an interest rate. Because most bonds pay a fixed interest rate, investment in bonds becomes more attractive if interest rate falls. Therefore, two are inversely related.
Yields and USD: Positively Correlated *A rising yield indicates USD appreciation while a fallling yield indicates USD depreciation. We can relate this relationship with the recent FOMC raising the interest rates, which has reduced the money supply to preserve the value of USD. As a result, yields rose and bond prices fell, and USD currency became more attractive to hold due to reduction of money supply.
Yields and Commodities: Inversely Correlated *If yields increase, USD will appreciate; therefore, an expensive USD would lead to a fall in commodities prices because most of the commodities are priced in USD.
Yields and Stock Market: Inversely Correlated *High yield environment leads to expensive loans, which discourage individuals from investing.
Therefore, if yields enter into a period of correction, we first expect the USD, or the US Dollar Index to fall, which would lead EURUSD, GBPUSD, AUDUSD, etc to rise and USDCAD, USDCHF, etc to fall. From the charts of those USD pairs, we can spot that the retracements have already begun from their recent highs and lows.
Check out our ongoing trading ideas below :)
