EUR/USD: Won't Go Short Without Support From The Bond Market - SocGen

That sound hammering away at the inside of my thick skull this morning is coming from the chart I’ve show a few times this year already,of real yield differentials and the dollar. Until the current downtrend in US real yields stops, and preferably reverses, in both absolute and relative terms, the dollar is likely to struggle. If anything, the dollar is falling more slowly than relative real yields are. The US labour market report did nothing to really propel real yields higher, painting a picture of ’more of the same’ about the state of the labour market, and doubts about the impact of Donald Trump’s polices are gnawing away at the confidence of dollar bulls and bond bears.


The second chart is one I did mention yesterday – it shows a 5-year history of speculative futures positioning in 10yr Notes and the dollar. This is just a partial glimpse at market positioning but on this measure, the market is more short of bonds than at any point in the last decade. Price action bears that out so far this year. The net dollar long isn’t nearly as exciting but the FX market is the tail and the bond-dog is doing the wagging.

All of this leaves us nervous...And we won’t go short EUR/USD without some support from the bond market.

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