US yields surge to start a busy week for US lawmakers Dollar Index probing YTD highs

US yields surge to start a busy week for US lawmakers, Dollar Index probing YTD highs

As my colleague Joe Perry noted in his Week Ahead report, it will be a busy week for US lawmakers, with Congress trying to hash out votes on a $3.5T social welfare spending package, a $1.2T infrastructure bill, and an agreement to raise the debt limit ahead of a potential partial government shutdown on Thursday. For the uninitiated, here is a quick breakdown of where each bill stands as of writing:

The $1.2T infrastructure bill has already passed the Senate with help from Republicans, and Nancy Pelosi, the Speaker of the House, is optimistic that it will pass through the House of Representatives this week.
The $3.5T social and environmental spending bill remains controversial, with Republicans and more centrist Democrats balking at the big price tag – negotiations on that front are likely to continue, with the headline sticker price potentially working its way lower as the two sides seek a compromise.
Both parties recognize the tremendous cost of shutting down the government during a global health crisis, so most analysts are expecting at least a short-term agreement to keep the proverbial lights on ahead of Thursday’s deadline.

Between these big legislative priorities and Fed Chairman Jerome Powell’s clear signal that the central bank intends to announce its taper plans at its November meeting last week, US bond traders have clearly started to price in rising interest rates. Looking at the yield on the two-year treasury bond, which tends to have one of the best correlations with the value of the US dollar, rates are testing 0.28%, their highest level since the onset of COVID last March and a 10bp rise from the start of the month:

Source: TradingView, StoneX

Not surprisingly, given the close correlation between 2-year government bond yield and currency values, the US dollar is the strongest major currency so far this month. After retracing to its 100-day EMA to start September, the US dollar index is once again on the verge of breaking out above previous resistance in the 93.20-50 zone to its highest level so far this year:

Source: TradingView, StoneX

A confirmed break above 93.50 could open the door for a continuation toward the Q4 2020 highs for the dollar index in the mid-94.00s next. Meanwhile, even a pullback from this resistance area would leave the bulls in control on a medium-term basis unless the dollar index drops below its 100-day EMA in the 92.30 area.

How to trade with City Index

You can trade easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.