To The Moon

U.S. Dollar Index is thus far having its best year in history,while global bonds prices stage a "Black Monday", investors are get rid of risk assets. However, when the Dollar will peak? What factors to watch? And do you have interested in some currencies ETFs. Please check the article below.

1. U.S. Dollar Index Now Up 18.3% YTD

U.S. Dollar Index is thus far having its best year in history, the dollar closed up 0.96% at 114.11 on Monday, its highest in two decades. Non-US currencies generally fell, the euro fell 0.79% to 0.9610 against the dollar, and the pound fell 1.42% to 1.0690 against the dollar.

The U.S. dollar has gained a staggering 4% over the past five days — its biggest gain since the peak of the coronavirus scare in March 2020.

Reasons for the dollar's strong surge:

• The FED announced raise the federal benchmark interest rate by 75bps to a range of 3% to 3.25% on September 21. This is the fifth time the Fed has raised interest rates in 2022,Traders now believe the federal funds rate will likely stay above 4% for much of next year, pushing Treasury yields higher.
• Another reason for the dollar's surge is currency carry trades, in which investors borrow low-yielding currencies such as the yen and convert them into higher-yielding currencies such as the dollar for higher interest rates.

2. Global Bond Markets Stage a "Black Monday"

Meanwhile, the 10-year U.S. Treasury yield rose to its highest level since 2010. Historically, U.S. 10-year Treasury yields tend to embed a risk premium for future inflation.

U.S. bond yields of other maturities also rose across the board on Monday: 2-year U.S. bond yields rose 14 bps to 4.356%, 5-year U.S. bond yields rose 21.3 bps to 4.199%, and 30-year U.S. bond yields It rose 13.3 bps to 3.744%.

Bond prices are inversely related to yields, and a sharp rise in yields means a plunge in bond prices.

U.S. bonds are the basis for pricing in fixed income markets, affecting almost any security in the world. In view of this, if its yield continues to rise rapidly, it may trigger a re-pricing of risk, leading to a general tightening of financing conditions, triggering turmoil in emerging markets, and accelerating the current economic depression.

The bond market is in its worst year since 1949 and will continue to hit stocks in the coming months, Bank of America strategist, Michael Hartnettsaid in their latest report:

A sustained meltdown in the bond market could lead to a credit event that will fundamentally weigh on the dollar, U.S. tech stocks and long-term private equity deals in the long run. The slump in bonds in recent weeks means stocks have yet to bottom out.

Brent Donnelly, president of Spectra Markets, said:

Fixed income and U.S. Treasury yields rose rapidly as the Fed became more hawkish, attracting capital into the U.S. Rising yields have made people nervous and sold stocks, which has also led to a risk-off buying of the U.S. dollar.

3. Dollar Index Remains Bullish, Risk Assets Selloff

Unprecedented rate hikes by central banks in Europe, the U.S. and many emerging market economies to curb the highest inflation in decades have fueled fears that austerity measures will tip the global economy into recession. A slowdown in the economy will hurt the outlook for energy and commodity demand and dent investor risk appetite.

Stocks closed lower$S&P 500(.SPX)$ , $NASDAQ(.IXIC)$ , and the $DJIA(.DJI)$ fell into a bear market; oil $Micro WTI Crude Oil - main 2211(MCLmain)$ prices extended their recent losses; gold futures $E-Micro Gold - main 2210(MGCmain)$ closed at a 2.5year low. Investors are looking for a safe haven amid fears of a recession in Europe and the United States.

DoubleLine founder and CEO Jeff Gundlach tweeted: "The U.S. Treasury Bond market is rallying. Been a  long time, i have been a buyer recently."

As early as mid-September, Gundlach advised investors to buy long-term U.S. Treasuries, saying that the risk of deflation is much higher than in the past two years and has become a bigger threat; and suggested that the Fed's aggressive tightening will cause the economy to slow down next year. Long-term U.S. Treasuries will outperform. He also warned the market that the $S&P 500(.SPX)$ would fall to 3,000.

Michael Wilson, chief equity strategist at Morgan Stanley, warned that the continued surge in the dollar is raising concerns about corporate earnings, and similar performances have historically led to some kind of U.S. financial or economic crisis. .

It calculated in a report on Monday:

“Every 1% gain in the U.S. dollar index has a negative 0.5% impact on $S&P 500(.SPX)$ earnings. Wilson, one of the most aggressive U.S. stock bears on Wall Street, has correctly predicted this year’s U.S. stock decline, and he also sees fourth-quarter earnings growth There will be resistance of about 10%."

4. Technical Observations and 3 Factors Related to Dollar Peak

Michael Wilson, also forecasting a year-end target of 118 for the U.S. dollar index with no sign of relief in sight,he said:

In our view, such a move would end with some balance breakdown, which would lead to a major top in the dollar and interest rates.

Below are two technical observation on Dollar Index Inversion:

Source fromFunky Koval @Twitter

From 89 'there were roughly 3-4 inversions. These were relatively short periods. After each such inversion, there was a period of its normalization, and huge drop in thedollar index. We'll see if history repeats itself.

Source fromsapal bhaiya @ twitter:

I see thedollar index as follows:-
1. At this point, there is lot of speculation going arounddollar. Extremely pessimistic stock markets sentiment
2. Monthly Rsi above 80. Back inhistory when RSI neared or approached 80 ,dollar index turnaround.

Calvin Tse, head of developed markets strategy in the Americas at BNP Paribas, said that the dollar must meet 3 preconditions for a structural bear market, including:

• Falling interest rate volatility in the United States,
• Normalization of energy prices in Europe,
• And the abandonment of the zero-clearing policy in mainland China.

When these three conditions appear at the same time, it means that the US dollar will enter a bear market, but it may not happen in the short term; overall, although the trading congestion will cause a potential reversal for the US dollar, it still needs a large fundamental Change can reverse the trend.

The U.S. Federal Reserve's pause in monetary policy tightening could slow the dollar's gains. However, that seems like a distant prospect given that inflation is still heating up and the Fed is determined to fight it.

5. Currencies ETFs You May Interested In

$Invesco DB US Dollar Index Bullish Fund(UUP)$：UUP tracks changes in the value of the U.S. dollar relative to a basket of world currencies through the USDX futures contract.

$WisdomTree Bloomberg U.S. Dollar Bullish Fund(USDU)$:USDU is an actively managed ETF that is long the U.S. dollar against a basket of global currencies from developed and emerging markets.

$Invesco CurrencyShares Euro Trust(FXE)$: FXE tracks changes in the value of the euro relative to the dollar. 

$WisdomTree Emerging Currency Fund(CEW)$: CEW tracks changes in money market interest rates and currency values relative to the U.S. dollar in selected emerging market countries.

Question For You:

Do you think the Dollar will continue to up?

What risk asset you are holding now?