using bonds in intermarket analysis

slugFX said:
I also believe that higher yield = bullish FX. Basically which ever direction that yield goes is where EUR/USD & GBP/USD should go. They are positively correlated.

I got this information from ICT's Trading Plan Development Series Part 1. It is a very long one, but it is a gem!
Thanks for clarifying that Slug, Kuzia.

So it appears that I had the correlation upside down due to an ICT slide that said:

"Bearish Conditions = Interest rates are moving lower - Market Shuns lower yield"

If something is "shunned" I thought it meant "staying away from or avoided" in other words the yield would be moving higher.

Boy has the definition of that word wreaked havoc with my trading lately!

Thanks again Slug & Kuzia for clearing that up!

PS. Any thoughts on my more recent post regarding strength in the bonds?

sinsemilla said:
Can anyone explain what the bond yields are indicating?

To me they look as though theyre about to breakout to the upside which would equate to a risk on scenario for FX if Im not mistaken?

That said, they have diverged slightly with the UK yield making a higher high so could this indicate weakness in FX?



In Addition, the 5 year T note appears bullish in that the commercials have increased net long position (COT) also the net open interest has declined as the market fell indicating strength.

Does this add up to further risk off expectation in FX? ie. Bonds in demand = Interest rates lower)

 

foreigner

Est. 12480 Hours and Counting
Does anyone want to comment on this analysis of the bond market?

HTF Support
COT Extreme
Open Interest Lower in Declining Market
---------------------
= Bullish for USD



US Yield Making New 2yr High
UK Yield Making New 2yr High
German Yield Failing to make New high
-----------------------------------------
= Bearish Euro



To me this indicates that at the very least we are due a major correction in EURUSD.

Presumably the GBPUSD will follow to some extent.

We are now looking for essentially the TOP of a market maker sell model to get short on a higher time frame.

Appreciate your comments
 

slugFX

Well-Known Member
That analysis looks good to me.. except it looks like today wasn't the day to take a short. I took a short on a turtle soup "stop raid" at London Open and got out as price was about half the way to my stop loss, I should have gotten out earlier because price went pretty stagnant upon entry, but at least I didn't let it hit my stop loss.

USDX is approaching a key support level at 81.75 which is also OTE on the daily chart. That may be a good area to take a short on the Fiber from...
 
P

Piper

Guest
foreigner said:
Does anyone want to comment on this analysis of the bond market?

HTF Support
COT Extreme
Open Interest Lower in Declining Market
---------------------
= Bullish for USD



US Yield Making New 2yr High
UK Yield Making New 2yr High
German Yield Failing to make New high
-----------------------------------------
= Bearish Euro



To me this indicates that at the very least we are due a major correction in EURUSD.

Presumably the GBPUSD will follow to some extent.

We are now looking for essentially the TOP of a market maker sell model to get short on a higher time frame.

Appreciate your comments
When bonds rising the yields are going down,so its kinda bearish.The analysis is good in my opinion,the conclusion not :)
Just to explain a bit about currency and bond relation:
Lets say I'm buying a 2 yr bond of 100$'s face value at 80$.So my yield is 20$'s.When the bond prices will go up lets say to 90$ then the reason to purchase bonds lessens,since the yield dropping and in 2 years when i'll get my money i get only 10 bucks.So i'll covert my dollars and seek yields elsewhere.
Of course thats a very oversimplified explanation. Would advise to anyone to watch TTC- money and banking video course.You learn so much about money in general and about the fundamental reasons why markets shifting and how..Well simply mind-blowing.
Well worth the time invested.And you can find it if you want in all kind of places over the net ;)
 

jack

Administrator
Staff member
Speaking of bonds, I just came across this and found it interesting:

To say that bonds are under pressure would be an understatement. Over the last few months, sentiment about fixed income has flipped dramatically: from a favored investment destination that is deemed to benefit from exceptional support from central banks, to an asset class experiencing large outflows, negative returns and reduced standing as an anchor of a well-diversified asset allocation.....
Full article here:

http://www.pimco.com/EN/Insights/Pages/Whats-Happening-to-Bonds-and-Why.aspx
 

Simr

Well-Known Member
Hi,

The chart of 10 yr bond , is NOT of the yield !.. So in your chart analysis , if the bond is due for a move up , the yield comes down = BEARISH for the USDx.

the USGG10 , GDBR10 , GUKG10 co relation seems spot on. :)
 

foreigner

Est. 12480 Hours and Counting
interesting that the 10yr Bond gapped up at the same time as the foreign currencies.

Draw your own conclusions..

 

slugFX

Well-Known Member
Hi Simr,

I think you are wrong. The Cable [GBP/USD] & The Fiber [EUR/USD] are positively correlated with the bond yields. This means if the bond yields go down, theoretically the Cable and Fiber should go down and since those are going down and the US Dollar is on the right side of the symbol.. that means yields going down is BULLISH for USDX.

The actual bond prices should be positively correlated with the US Dollar and thus inversely correlated with Cable and Fiber. If bond prices go up, EUR/USD and GBP/USD should go down. If bond prices go down, EUR/USD and GBP/USD should go up.


Simr said:
Hi,

The chart of 10 yr bond , is NOT of the yield !.. So in your chart analysis , if the bond is due for a move up , the yield comes down = BEARISH for the USDx.

the USGG10 , GDBR10 , GUKG10 co relation seems spot on. :)
 

Simr

Well-Known Member
Hi,

I think its getting mixed up. I was just talking US 10 yr bond , not the euro bund / UK bond.

The USDx moves because the yields on the US bonds ( generally 10 yr) change. If the bond price goes up , yield will come down , which makes the USDx move down , which in turn will cause cable and fibre to move up.

So simply put , when just seeing US 10 yr bond , the way the price of that bond moves , that is the way EU/ GU will move.

And why?..because money chases interest rates. If there is a lower yield on the US bond , money will flow to other places.

That's what I have learnt . :)

slugFX said:
Hi Simr,

I think you are wrong. The Cable [GBP/USD] & The Fiber [EUR/USD] are positively correlated with the bond yields. This means if the bond yields go down, theoretically the Cable and Fiber should go down and since those are going down and the US Dollar is on the right side of the symbol.. that means yields going down is BULLISH for USDX.

The actual bond prices should be positively correlated with the US Dollar and thus inversely correlated with Cable and Fiber. If bond prices go up, EUR/USD and GBP/USD should go down. If bond prices go down, EUR/USD and GBP/USD should go up.
 

slugFX

Well-Known Member
Hmmm.. I still think you have it wrong :eek: at least according to the notes that I have taken, but I am somewhat of a noob so I'll wait for someone else to chime in.

I'm pretty sure the USDX moves up with the bond prices and therefore also moves up when the yields are moving down.

The German/UK bond yields move the same way the US yields do so I think it is more of a risk on/risk off type of thing (when the yields move up risk is on, when they move down risk is off). When risk is on, people buy foreign currencies, when it is off, there is a flight to quality i.e. the US Dollar.
 

fred9455

Well-Known Member
slugFX said:
Hmmm.. I still think you have it wrong :eek: at least according to the notes that I have taken, but I am somewhat of a noob so I'll wait for someone else to chime in.

I'm pretty sure the USDX moves up with the bond prices and therefore also moves up when the yields are moving down.

The German/UK bond yields move the same way the US yields do so I think it is more of a risk on/risk off type of thing (when the yields move up risk is on, when they move down risk is off). When risk is on, people buy foreign currencies, when it is off, there is a flight to quality i.e. the US Dollar.
I'm with you Slug

USDX and US Bonds are correlated, USDX and Yields are inversely correlated

Bullish Bonds = Bearish Yields
Bullish Yields = Bullish Foreign Currencies and Bearish Dollar
Bullish Bonds = Bearish Foreign Currencies and Bullish Dollar

This is how I have it in my notes.
 

Tansen

Well-Known Member
If your using stockcharts.com it's inversed

The UST#Y is correlated with the USDX and therefore negatively correlated with the EUR/USD and GBP/USD

If your using bloomberg it's accurate and NOT INVERSED

The UST#Y is negatively correlated with the USDX and therefore correlated with the EUR/USD and GBP/USD
 

slugFX

Well-Known Member
Huh??? Why? If I remember correctly, the charts on stockcharts.com look the same as the ones on Bloomberg...

Tansen said:
If your using stockcharts.com it's inversed

The UST#Y is correlated with the USDX and therefore negatively correlated with the EUR/USD and GBP/USD

If your using bloomberg it's accurate and NOT INVERSED

The UST#Y is negatively correlated with the USDX and therefore correlated with the EUR/USD and GBP/USD
 

Tansen

Well-Known Member
slugFX said:
Huh??? Why? If I remember correctly, the charts on stockcharts.com look the same as the ones on Bloomberg...
I worded that wrong,

stockcharts.com is correlated 100% with the USDX because they inverse the yield just image wise so what you see as it going down is which means the DX is going down which is correct however it actually is that the yield is going up and the DX is going down.

Remember the old argument about bonds rates go down people flock to USD Gold Etc to put their money. Then when they flock out of USD, Gold, Etc safety investments they flock to bonds to lock in a high interest rate.
 

Simr

Well-Known Member
Guys,

Bloomberg shows yields. AvaMT4 shows bond prices. After FOMC on bloomberg USDx 10 yr yield went down , just like USD 10 year bond PRICE spiked. As all can see USDx has tanked.

Implies , USDx follows Bond yield OR ..USDx is inversely related to Bond price .

Please correct me if I am wrong on this.
 

Tansen

Well-Known Member
Simr said:
Guys,

Bloomberg shows yields. AvaMT4 shows bond prices. After FOMC on bloomberg USDx 10 yr yield went down , just like USD 10 year bond PRICE spiked. As all can see USDx has tanked.

Implies , USDx follows Bond yield OR ..USDx is inversely related to Bond price .

Please correct me if I am wrong on this.
Like this ? http://finviz.com/futures_charts.ashx?t=ZN
 

foreigner

Est. 12480 Hours and Counting
Tansen said:
Remember the old argument about bonds rates go down people flock to USD Gold Etc to put their money. Then when they flock out of USD, Gold, Etc safety investments they flock to bonds to lock in a high interest rate.
I thought bonds (t notes) went up with the USD? if thats the case, how come bonds are looking so strong and the dollar is looking so weak?

Are they propping the bond market up to hide the collapse of the dollar?

or is this a suspect sell off in the dollar and should we expect a snap back in to positive correlation?
 

Tansen

Well-Known Member
Give Jack a few minutes, He'll come in and straighten it out, he had to explain it to me before and well I get the idea but I don't explain it well lol.
 

Simr

Well-Known Member
Spot on. That's the 10 YR Bond PRICE ( not yield !! ) shooting up. When price shoots up... yields fall.... if the yield is falling then why would anyone want to invest in that asset ?

Hence ( in this example , USDx ) the asset tanks ...

Tansen said:
Like this ? http://finviz.com/futures_charts.ashx?t=ZN
 

foreigner

Est. 12480 Hours and Counting
Simr said:
Hi,

The chart of 10 yr bond , is NOT of the yield !.. So in your chart analysis , if the bond is due for a move up , the yield comes down = BEARISH for the USDx.

the USGG10 , GDBR10 , GUKG10 co relation seems spot on. :)
I thank you Simr, I can see that you tried to correct me before, I can see now that when bond prices go up the demand for them goes down.

From a supply demand point of view its counter intuitive because normally if demand for something goes up so does the price... In this case "Bonds No Demand" means bond prices up!
 

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