US Yield Curve Underpins US Dollar Buying

Ever since mid August, the US Dollar has maintained a much stronger correlation with the US yield curve. To illustrate this relationship, in the chart one can see the curve in blue and the DXY index in green, with the red lines the long and short-dated bond yields. As the focus shifts towards re-pricing a more aggressive Fed cycle, expect the US yield curve to hint directional clues. In the case of Monday's price action, we find the dip in the US Dollar not accompanied by a deterioration of the yield curve, and therefore may be conceived as a potential opportunity to engage in long-sided business in the USD at the right price levels, which is obviously dependent on one's trading profile.