10-YEAR BOND YIELD SPREADS
Monitoring 10-year bond spreads can give you a good idea of where investment flows may be headed in the future. Here’s the thing, though: you can’t just look for the country that has the highest yield and anticipate that the currency from that country is going to continue to move higher and higher. What you want to be looking for is a country whose bond yields are increasing. It is this change in bond yields that can lead to a change in investment flows, which can lead to an increase in the value of the currency.
For instance, if you are watching bond yields in Switzerland, and you notice that they are starting to move steadily higher, this is a great clue that the value of the Swiss franc may be appreciating. Now, if, at the same time, you notice that the bond yields in the United States are starting to decline, you should seriously consider looking at placing a trade that takes advantage of both a strengthening Swiss franc and a weakening U.S. dollar.
The Financial Times is an excellent resource for tracking these bond rates.
STOCK MARKET PERFORMANCE
Monitoring stock market performance can also give you a good idea of where investment flows may be headed in the future. Here’s the thing, though: just as with bond yield spreads, you can’t just look for the country that has the strongest stock market and anticipate that the currency from that country is going to continue to move higher and higher. What you want to be looking for is a country whose stock market is getting stronger and stronger. It is this change in the strength of the stock market that can lead to a change in investment flows, which can lead to an increase in the value of the currency.
For instance, if you are watching the stock market performance in Japan, and you notice that the market is starting to move steadily higher, this is a great clue that the value of the Japanese yen may be appreciating. Now, if, at the same time, you notice
that the stock market in the United Kingdom is starting to decline, you should seriously consider looking at placing a trade that takes advantage of both a strengthening Japanese yen and a weakening British pound.
The Financial Times is an excellent resource for tracking the performance of various stock markets.
