Chances of US dollar collapse
Key points
- UUP, a US dollar basket ETF, is up 20% since 2021
- Options on UUP show a 9% chance of significant fall in USD by the end of the year*
- Euro has the highest negative correlation among major currencies to US interest rates at -0.42
*Calculated using the delta on 27-strike puts expiring Dec. 15, 2023
Can the USD surge continue?
Investigating a USD ETF that contains a basket of major currencies, UUP, shows the dollar is up 20% since 2021 and has not traded below $27 in over a year.
Options on UUP tell us the theoretical probability of a fall past $27 is currently around 9%. The current rally in US interest rates is part of the reason markets are not pricing in a significant fall.
US 10Y and forex
The 10-year treasury yield nearing is historic highs back above 4.00%. The surge in treasury yields has helped contribute to the recent strength in USD in forex markets.
Among major currencies, euro has the highest negative correlation to US interest rates with -0.42. British pound and Swiss franc are close behind at -0.39 and -0.37, respectively. Japanese yen, on the other hand, only has a -0.18 correlation to the 10-year. (Source: dxfeed)
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
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