Interest Rate Influence Returning?
Relationships change, behavior does not; which is why we teach how to spot set-ups and signals in individual markets, and don’t dwell on parallel analysis between markets. We would never want to rely on a market relationship in our trading, because relationships by definition change.
I focus on currencies but work with clients who actively trade commodities and the other financial instruments, so I’m generally aware of significant developments and market moves outside of the major currencies. This week the U.S. Treasuries kept us busy as the bond market sold off sharply, causing an uptick for long-term U.S. interest rates — the 30-year T-bond yield rose from 3.71 to 3.98 over the past 2-weeks.
It was in the back of my head that an uptick in U.S. rates could have an effect on the currency markets, but this certainly would not influence any trading decisions as we only consider fact based trade triggers. When I happened to look at a 15-minute chart of Dec Bonds this afternoon I was struck how similar it looked to AUDUSD. See Figure 1 with the 30-year bond future intraday chart on top and the AUDUSD intraday chart on the bottom. While not actionable information it is something to watch, given the interest-rate component in currencies.
Will this become a new dynamic? Will currencies go back to tracking interest rates and behave less like stock indices and other asset class markets? I don’t know. But by having a method and mindset that focuses on behavioral tactics in individual markets and is detached from relationship analysis between markets means we don’t guess which way markets move next, but go along with where they are moving now.
Jay Norris
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009 which is the text book for the intermediate level trading course offered though Trading-U.com see: Trading Courses Jay’s second book Mastering Trade Selection and Management, McGraw-Hill will be in book stores in 2011
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