Yields Continue To Dominate the Dollar

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The Dollar is still on the cusp, with the bulls and bears in the midst of a major battle in the 92-93 region. But in reality is the bond market that is driving the direction of the Dollar, with spreads between US and German Yields continuing to contract. But first, we start with equities.

Equity Market

The S&P 500 went nowhere today, with Biotech (IBB) and Tech (XLK) giving some back, while the Financials (XLF) appeared to stage a break higher, but that failed as the market got nervous about the escalating tensions with North Korea. For the most part, the market has paid little attention at all to the recent developments. It is unlikely that that changes either, with a VIX Index spiking to around 11, which is still at very very low levels.

VIX by Scorpio244 on TradingView.com

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Financials continue to trend higher, with today’s pull back likely to just be a speed bump. The ETF managed to stay above support and appears to be putting a double bottom in place.

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XLF by Scorpio244 on TradingView.com

The Dollar

A break in the Dollar Index of the 92-93 level continues to be a major battle ground, and if the index breaks that level, it is likely looking to move considerably lower.

DXY by Scorpio244 on TradingView.com

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And if you want to know what the market thinks about the state of the US economy vs. the situation of the European economy, look no further than the spreads between the 10-Year treasury and the 10-Year German Bund. With that spread narrowing considerably since the start of the year.

10-UST vs. 10-Bund by Scorpio244 on TradingView.com

And that is why the Dollar has been under so much pressure. The perception and the potential reality that Europe is likely to stop seeing accommodative policy and that its economy is improving.

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Disclaimer: Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendation made during the past twelve months. Past performance is not indicative of future performance.

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