The biggest difference between the recent debt negotiations and 2011 is the trend of long-term government bond interest rates and the US dollar. In 2011, the sharp drop in long-term bond interest rates triggered the depreciation of the U.S. dollar exchange rate, but now it is the rise in long-term bond interest rates that leads to the appreciation of the U.S. dollar. Looking back at history, it is somewhat similar to the 2013 government shutdown.
2013 U.S. long-term and short-term treasury bond interest rate performance
It can be seen from the figure that in October 2013, the debt ceiling negotiations failed, and the U.S. government shut down from the beginning of the month until the Republican Party made concessions on the 17th. During this period, interest rates on short-term bonds have skyrocketed, driving up interest rates on long-term bonds. After the debt ceiling was raised, both long-term and short-term bond interest rates gave up all their gains, and the US dollar also spit out long-term bond interest rates. However, the volatility of the U.S. dollar at that time was not as high as the current increase. There were other reasons for the sharp rise in the U.S. dollar exchange rate and long-term bond interest rates.
USDIndex Half Year Trend
Judging from the trend of the U.S. dollar index in the past six months, every reversal of the U.S. dollar is accompanied by news momentum. In November last year, multiple news caused the dollar to peak and fall sharply in the long term. It was not until February that the U.S. data strengthened that the dollar stopped falling and turned up. However, the good times didn’t last long. The bankruptcies in mid-March caused the dollar to plunge again. Until May 10, when the U.S. inflation was released, the still stubborn core inflation made interest rate hike expectations bottom out. Superimposed on the impact of debt negotiations, the U.S. dollar index soared in tandem with long-term interest rates. It can be found that inflation and interest rate hike expectations play a decisive role in the sharp rise and fall of the dollar.
rate hike expectations
It can be seen from the figure that the market’s expectations for the Fed’s interest rate at the end of the year coincide with the turning point of the US dollar index. The key to turning the U.S. dollar from rising to falling in November last year and March this year is the simultaneous peaking and falling of interest rate hike expectations. The recent surge in the U.S. dollar index is also in line with the surge in interest rate hike expectations. Therefore, if you want to be bearish on the dollar, the key lies in the next signal that reverses the expectation of raising interest rates. Judging from the news, either the core inflation is lower than expected (such as the core PCE price index tonight, but it is unlikely), or the banking industry is bankrupt again, and the success of debt negotiations also has a short-term negative impact on the dollar.
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From the current point of view, the decline in core inflation is out of reach, but the bankruptcy of the banking industry is worthy of attention. As the old saying goes, the root cause of bank bankruptcy is the sharp depreciation of long-term bonds held to maturity in the balance sheet. The recent surge in long-term interest rates in the United States and further declines in bond prices will only make the banking industry more dangerous. From the perspective of the market, the share price of Westpac United Bank has fallen for three consecutive trading days, and the KRE regional bank index in the United States has also weakened. Although it has not yet turned into a bearish trend, the crisis is hovering on the verge of breaking out.
Overall, views on the dollar remain consistent. The higher the dollar goes, the greater the short-term pressure it will bear. The most anticipated short-term negative signal is bank bankruptcy or stock price plummeting on the one hand, and successful debt negotiations on the other.
USDIndex daily chart
Judging from the daily chart of the U.S. dollar index, the short-term momentum is too strong, and the winning rate of shorting on the left side is extremely low. In the day, it is still mainly bullish on dips in line with the data. However, the 100-day and 200-day moving averages still remain bearish, and the March highs provide resistance in the supply zone. There is an opportunity to enter the short-term short-term short order, but it needs to cooperate with the bad news. In terms of indicators, pay attention to the signal on the right. You can wait for the MACD fast and slow line to form a high-level dead cross, and the column line diverges. At the same time, the stochastic indicator keeps opening and returns to the central area to increase the downward momentum when entering the market. At the upper resistance position, we can pay attention to the 105 mark.
Today’s data – Beijing time
20:30 U.S. core PCE price index in April
20:30 The monthly rate of US durable goods orders in April
22:00 The final value of one-year inflation expectations in the United States in May
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author:
ACY Securities ACY Securities
