USD stalls despite plunging US 10y yields

08/12/2020

The greenback has stopped its decline this week and managed to book tiny gains during the morning EU session on Tuesday.

However, the situation was the same yesterday, and it erased all of its gains to plunge into negative territory later in the day. The same scenario might occur today, as well.

Interestingly, the 10-year US yield dropped 6% yesterday, and the greenback ended the day flat. Even in the USDJPY pair, which tends to be sensitive to yield movements. 

It looks like some well-known market correlations are breaking down. The USD keeps dropping, despite the 10y US yields being in an uptrend since August. However, the real yield for that maturity remains deeply negative as inflation is much higher than the bond yield. Thus, that factor could have been driving the greenback lower over the previous months. 

Moreover, precious metals such as gold and silver have been stuck in a medium-term downtrend, posting lower lows and lower highs, despite plunging USD and negative real yields. That is another important correlation that does not work anymore, at least momentarily. Metals usually rise when the USD is weak, and yields are plunging.

Later in the day today, the euro zone's GDP numbers are due, followed by the German ZEW indices, which will most deteriorate again, following the next round of COVID restrictions. 

There are no US data on the agenda today, but investors will focus on the stimulus chatter since the year-end is getting closer, and there is still no sign of fresh fiscal stimulus. 
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