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Realrates

What’s ahead for the dollar?As the year draws to a close, it's an opportune time to evaluate the potential trajectory of the dollar going forward. From a broader perspective, we anticipate a regime shift for the dollar in 2024, potentially marking significant turning points for the major dollar pairs. Notably, since the 1990s, each instance when real rates crossed the 1% threshold, the dollar experienced an average sustained fall of approximately 18% over around 340 days. The combination of aggressive hikes and lower inflation has now pushed real rates clearly above the 1% mark, but the dollar’s reaction thus far has been rather muted when considering the past 3 reactions. This observation aligns with our cyclical analysis of the dollar. Historically, the dollar index has demonstrated a recurring cycle of approximately 3.5 years, often bottoming out at the end of most cycles. Furthermore, the dollar index has recently dipped below the crucial 103 resistance level, a significant benchmark since the 1990s. In light of a potential weaker dollar in 2024, we're exploring various strategic positions. At present, the NZDUSD pair, in particular, stands out due to its compelling technical setup and policy divergence. Currently both the AUDUSD and NZDUSD are testing their 3-year resistance levels. Given the current inflation and interest rate scenarios, we find the NZDUSD pair more appealing. New Zealand's inflation rate remains relatively high compared to the US, while their policy rates are almost identical. Moreover, the Reserve Bank of New Zealand (RBNZ) maintained its hawkish stance in the last Monetary Policy Committee meeting, whereas the Federal Reserve has begun hinting at possible rate cuts in 2024. Such divergence in policy should favor the NZDUSD pair as rate differentials shift towards the NZD. Hence, considering the weaker outlook for the Dollar in 2024, combined with the technical setup in the NZDUSD's price action and the emerging policy divergence, we lean bullish on the NZDUSD. To express this view, we can go long the CME New Zealand Dollar Futures at the current price level of 0.6247, take profit at 0.6800 and stop at 0.6050. Each 0.00005-point move is 5 USD. With that, we wrap up our last piece for 2023. We wish everyone a Merry Christmas and a Happy New Year! The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com
CME:6N1!Long
by inspirante
GOLD - Positive real rates is negative for GoldThe attractiveness of Gold is tarnished When cash instruments yield a positive rate of return More and more people are getting on board of higher interest rates (Dimon, Santelli) But u can see the Gold price has been inversely correlating with the rate of return for decades. It's bull run in the 2000's along with the commodity bull , coincided with real rates trending to less than zero. Gold Topped a few months prior to that negative reading in 2012! The current triple top that has been in place for he past 3 years , seems to be in danger of breaking down if rates continue up the next few years. The key level to watch is last year's lows in October around $1611 Which I believe is a distinct reality if rates head up to 7%
COMEX:GC1!
by BallaJi
[STUDY] Real Rates of BondsA study showing the real rate of returns on the various US Treasuries. Calculated by subtracting the YoY Inflation Rate (released monthly) from the Yield of the Bond. Real Fed Rate also shown for reference. Above 0 makes Bonds and Savings more attractive, aka more Demand for them. Price may increase and yields decrease, encouraging selling. Below 0 provides negative real return, making Bonds and Savings accounts unattractive, reducing demand. Price may decrease and yields increase to stoke demand.
ECONOMICS:USINTR
by PHICAPITALINVESTMENTS
US 10-year real rates (TIPS) – the rising true cost of capital US 10YR ‘real’ rates are essentially US 10yr Treasuries adjusted for 10yr inflation expectations – TradingView users can set this up using the equation: TVC:US10Y-FRED:T10YIE. We can see this as the true cost of capital and in effect, the higher yields rise the more this supports the USD and negatively impacts US equity valuations. The rate of change (ROC) is always important, but if US 10yr real rates head to 2% then this may accelerate the selling in the US500 and NAS100.
TVC:US10YLong
by Pepperstone
Negative Real RateReal rate is different from interest rate. Real rate is the difference between interest rate with the inflation. We have been running on negative real rate for a decade plus. This is an accommodative measure by the Fed to make sure the market is still running hot. S&P500 has been running well during this period of time where the interest rate is kept below the inflation. However there are several occasion where the negative real rate is running deep in 1970s and 2020s, which prompt the Fed to raise the rate. However so far we have not seen real rate hikes goes into positive territory yet. When the real rate is in positive territory S&P500 index will also running well as the economy is running well without Fed's life line support. However I'd expect that the market will be flat and volatile during transition between negative to positive real rate, because the market trying to figure out whether the economy would be running well or not when the life support is removed slowly.
SP:SPX
by danny_peanuts
1
the stagflation paradox. higher real rates + steepen yield curvehi there, dear fellow. we've recently stumbled upon this chart, in the quest for a leading gauge for the dxy. this chart depicts a paradox. in white, US10Y-USIRYY; in orange, US10Y-US02Y. if you remember our previous idea, namely on the DXY and the yield curve spread (US10Y-US02Y), we've pointed out back then that a steepening of the yield curve would be bearish for the DXY. well, now we just compared it with our gauge for the real rates, namely US10Y-USIRYY. what happens is, as it itself is on an extreme low in the last 20y+ (i haven't checked it beyond that, and it doesn't matter), it's likely to eventually revert to the mean. by the way, that's where the fed efforts are pointing to. that on itself is DXY bullish, untill and unless other CBs beat the fed in hawkishness, which is not the case by now. the recent tandem between both curves (since feb/21), suggests they're going up together, when and if. as for the orange curve, that should be dollar (DXY) bearish; as for the white on, bullish. who wins? the white one, for as higher real rates make more sense to be dollar bullish than it makes to be dollar bearish under a steepened yield curve. why? world wide higher inflation. in short, literally, DXY has a long way to go. our estimate is 2y+ of pain for stocks and cryptos, for as high and higher DXY is risk off for SPX and BTC. thank you.
TVC:US10YShort
by greenfield_br
3
An inversed relationship There is a long running inverse relationship between gold and yields. As a non-interest bearing asset, gold becomes less attractive when yields, or real yields in-particular, go up. Using the TIPS (Treasury Inflation-Protected Securities) and inverting the price (price and yields are inversely related), we get a proxy for real-yields. With this, we can look at the 10-year chart of gold prices vs yields and the inverse relationship becomes clear now-- rising real yields push gold prices down! As gold is quoted in US dollar, the strengthening dollar has added salt to the wound, further weakening the price of gold. On a shorter timeframe, the 1875 handle seems to be of a significant level, providing the previous levels of support and resistance. With this support level breached last week and a retest this week, coupled with the rising yields and a strong US dollar, we see further downside for gold from here. Entry at 1875, stop above 1960. Targets are 1762 and 1680. Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios.
COMEX:GC1!Short
by inspirante
Volatile real rates lead to higher gold prices.During periods of deep negative real rates gold tends to do very well. The 1970's was a decade which saw big moves in real rates due as the Fed trying to combat the high inflation. The more volatile the moves are in real rates, and the deeper into negative territory real rates go, the better gold performs. We may be entering a similar period where the Fed is having to increase real rates with tightening policies, only to reverse course when it becomes clear the economy can take no more. Gold is forward looking and so will predict the above outcome before any other asset does. Therefore I would expect gold to rally, once the Fed begins raising rates in March in anticipation they will likely reverse course soon after.
FRED:FEDFUNDS
by WinstonWolfe
1
Rising real yields are driving the stock market selloffInflation expectations (T10YIE, red line) have been on the rise since Q1 2020. Nominal yields (US10Y, turquoise line) bottomed as gold (XAUUSD, yellow line) topped in Aug 2020 after the Fed marked the end of stimulus expansion, shifting speculation to timing the eventual tightening. However, stocks (ESH2022, S&P 500 future, purple line) did not turn lower until Dec'21-Jan'22 as *real* interest rates (DFII10, orange line) started to rise. This is as the markets began to believe the Fed's hawkish rhetoric, so inflation expectations came down while nominal yields pushed upward. Higher real yields drive portfolio de-risking. Investors are able to achieve a comparatively lower risk profile given a level of expected return, so assets toward the "risk-on" side of the spectrum suffer relative to anti-risk alternatives.
FX_IDC:XAUUSD
by IlyaSpivak
1
US dollar index facing key support line!The DXY has broken down from of a bearish ascending wedge. Looking to test the .618 Fib retracement level. If we break below this, the next support level at the .786 Fib level at about $81.5. If this happens, Equities will likely remain in an uptrend, particularly commodities. Gold is normally in this category, but due to central bank manipulation I would say it is in its own category (silver also). Real rates are key to watch to determine which way gold is heading. At the moment, Real rates are negative. Should we see higher CPI (inflation) prints and nominal rates stay around current levels, real rates will continue to head lower. Not investment advice* Do your own research ! Happy trading
TVC:DXYShort
by Joelthebowl
Gold - eternally disapointingSold a bit more last night, should be settled at 1870, need income via dividend...wondering if I should have sold the whole lot (using a mutual fund so exits are a bit delayed). Should gold continue tanking from here... Have 300 units left $10 entry, last exit was at 17.60 ish, want to hold the last 300 to see if gold can reclaim 2K and beyond, but my patience is dwindling...and income is necessary. The thesis of "real rates" capping gold's upside seems valid though, and no amount of goldbug complaining will solve the problem. Should gold catch some bullishness and actually seek new highs, will cash out mechanically/technically...but I fear that I will have sold for dividend income before this manifests. It is a matter of psychology and I am my own worst enemy in this case...but "cash-in-hand" is better than a dream of "making it or striking it rich."
FX:XAUUSD
by JJMa
GLD medium term target 204As previously suggested, GLD touched 194 before correcting down to 178-181 gapfill, which has completed as of Aug 12th. Now a bull flag has formed, 180 needs to hold for original bull thesis, with GP_C2 zone 179-180 being support. Bulls would want a decisive break out above the falling resistance as a confirmation for next attack towards 200. A couple of inside bars in the next sessions to consolidate between 182-185 would be ideal. Looking for a measured move to 204.8 in the next few weeks. Current position: LONG Disclaimer: These should be seen as the commentator's Notes to Self. Hopefully educational but aiming for entertaining. No legal or financial liabilities should be pursued from these materials.
AMEX:GLDLong
by cicizzyu