US Dollar Index Tumbles as Investors Chase Yields
As stock markets around the world tumble, the US Dollar Index continues to soar. Some investors are blaming the weak US dollar on global events like the recent unrest in Egypt or Greece’s declaration of bankruptcy. Other analysts point out that there is no correlation between world events and the strength of the US dollar. Nevertheless, most investors remain glued to their charts and wait for the momentum to swing back in their favor.
In recent days, the US dollar index has been on a steady decline, with many indicators pointing to a possible recession in the oil market. This can only mean one thing – the global economy will suffer. When the global economy takes a hit, it will invariably impact the US Dollar Index. One indicator that investors have noticed taking place is the change in stock market sentiment toward the US dollar.
The past few months have seen investors become more bearish about the US Dollar and this trend is expected to continue. Historically, US Dollar Index prices have followed a pattern called the “Bonds cycle”. When economic trouble hits the US, bond prices tend to increase and investors will start buying again. If the market is in an uptrend, bonds are considered a safe haven and bond yields will generally be lowered. In addition, financial institutions that issue debt securities are likely to cut their rates in preparation for a possible increase in interest rates as well.
If the market is in an uptrend, that is known as a bullish market. Bullish market conditions are typically associated with an economic recession or market-driven inflation. With bullish market conditions, investor confidence helps to support the strength of the US Dollar Index. On the opposite side of the coin, when the market becomes bearish investors sell off their bonds and financial assets. An investment portfolio is at risk of being wiped out during a bearish market and therefore, investors need to change their trading strategies if they want to avoid suffering losses.
Investors need to monitor the market closely and should determine the direction of market sentiment before they enter a position. It is important to avoid trading in a bearish scenario as this can lead to huge losses. To stay away from a bearish market, investors need to be aware of currency movements, fundamental factors and economic news. Currency technical analysis can provide insight into the movement of the US Dollar Index and can help investors by providing signals when to enter a particular trade.
There are many economic indicators that signal the start of a new uptrend. Economic indicators include Consumer Price Index (CPI), gross domestic product growth, employment rate, and gross monthly bank credit. However, there are other economic indicators that can also act as an indicator of market sentiment. When a market turns bullish, investors need to pay attention to indicators such as GDP growth, consumer sentiment, inflation, and rates.
When economic problems arise, the value of the US Dollar Index drops. US Dollar Index is highly influenced by changes in the economic situations all around the world. Economic problems can result in a drop in commodity prices and US Dollar Index is directly associated with oil prices, gold rates, and bond yields. Therefore, it is necessary for investors to monitor the movement of global indicators including Euro Stocks and Developed Markets.
Another important factor that affects the movement of the US Dollar Index is the political situation. A strong and vibrant US Dollar Index can only be possible when the political stability is maintained. Political problems can negatively impact the market mood and affect investor sentiment towards the currency pair. Therefore, to keep track of market sentiment, it is important for investors to monitor political developments in the major economies.