US Dollar Emerges as Top Safe Haven; Golden Cross Signals Strength Ahead
The Fed's hawkish dot plot and optimistic economic outlook have fueled concerns over possible interest rate hikes. Meanwhile, the looming possibility of a government shutdown has raised concerns that high government spending may lead to increased Treasury issuance, causing a surge in all terms of US Treasury yields, which in turn has dragged down the entire bond market.
The market has come to accept the new game rule of "higher for longer", leading to a "triple kill" scenario involving stocks, bonds, and commodities. In contrast, the US dollar has benefited from both high-interest rate support and safe-haven demand, leading to a strong surge.
Following its first intraday breakthrough of the 106 mark on September 25, the $USD(USDindex.FX$ continued its upward trend and reached 106.32 on September 27, setting a 10-month high, and surpassing the 105.89 it reached during the regional banking crisis in March. The $USD(USDindex.FX$ has risen for eleven straight weeks since mid-July, demonstrating an impressive rebound of 6.7% from a low point of 99.547.
Equity markets are believed to be facing valuation pressure due to historically high US Treasury yields and an uncertain economic outlook. However, even traditional safe-haven assets are struggling amidst this turbulence, with investors finding few viable investment options other than the US dollar.
1. U.S. Treasury investors are facing an unprecedented third consecutive year of losses as Treasury yields have reached record highs.
The Fed's tight monetary policy, liquidity concerns, increased issuance of US Treasuries, and volatility triggered by large futures bets have all hit the US Treasury market hard. Currently, the $U.S. 10-Year Treasury Notes Yield(US10Y.BD$ stands at 4.5%, and the safe-haven attribute of US bonds appears weak.
2. On the foreign exchange front, traditional safe-haven currencies such as the Japanese yen and Swiss franc have significantly fallen.
The Japanese yen has weakened to more than 149 yen to the dollar, reaching a new low of 11 months. The Swiss franc has been on a decline for the past 11 consecutive trading days due to low interest rates, marking the longest losing streak since 1975.
Last Friday, the $USD(USDindex.FX$ formed a "golden cross" in terms of technical indicators. The dollar index has a 50-day SMA of 103.599 as of 27th September, which is above its 200-day SMA of 103.083. This could indicate that the dollar's recent gains may lead to a larger uptrend, following the trend set by previous golden crosses. Based on an analysis by Dow Jones Market Data, the US dollar typically continues to rise in the three months after a golden cross, with an average gain of 1.9% and trading higher 79.2% of the time.
The golden cross, a popular technical analysis indicator, is a bullish breakout pattern triggered by a security's short-term moving average (e.g. the 50-day moving average) surging above its long-term counterpart (e.g. the 200-day moving average) or resistance level.
In addition to the surge in US Treasury yields, the sharp increase in the US dollar beyond its one standard deviation range could have significant implications for company fundamentals and asset allocations. This could lead to further challenges for US stocks.
“A new cycle high in yields and a golden cross in the dollar are strong headwinds for the market,” said Jeffrey deGraaf, a technical strategist at Renaissance Macro Research.
Lisa Shalett of Morgan Stanley issued a warning to investors, stating that a strong US dollar could potentially create problems. She said, "The surging greenback is trading at its highest levels in 20 years. Equity investors need to proceed with caution."
Source: The Wall Street Journal, Market Watch, Investopedia, Yahoo Finance, Morgan Stanley
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
Read more
Comment
Sign in to post a comment
Moomoo News Official Account
Follow the top news of US market!
45KFollowers
6Following
19KVisitors
Follow
Mouth Breather :
The US dollar is fake and backed up by nothing...Ditch the fake banks and fake money. Buy gold and silver people.
testntry Mouth Breather: Can you eat gold and silver? The price is decided by believe, same as US dollar and Bitcoin.
72860536 : The US dollar is not safe from anything.
It’s gonna implode for many reasons, including Bricks.
RVLTN testntry: Don’t drag the hardest asset ever known into the same sentence as the complete shite USD.
#BTCforthewin