Forex

DXY vs US Yields: Recession Risk With Higher RatesJul 6, 2022

Markets participants are waiting on important FED minutes today and then NFP on Friday which can be important data for a potential policy outlook and further decisions by the FED. Investors and speculators are afraid of recession as economic activity seem to be weakening while Central Banks are lifting rates. The question is what will the FED do. Will they highlight the risk of a recession, or will they ignore it? If they are aware of risk, then this will mean limited hiking rates, therefore stocks could start bottoming. On the other hand, any recession ignorance by the FED can mean further weakness on stocks, and higher US yields with the USD (DXY), but this may quickly change if NFP on Friday will bad.

DXY vs US Yields Chart
DXY vs US Yields Chart

So for now, I think that the most important is to track the 10 year US yields vs USD. We see a negative divergence between these two, so sooner or later one will catch the other. Will USD come down, or USD explode even higher if 10 year will stop at 120’20 resistance? I think we will get an answer soon.

Grega

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