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How to Trade France 10 Year Government Bond Yield


Nov.13.2013

During my interview with Wealthy Radio's wealth coach, Deborah Owens, we received a question from Dave Tonaszuck, CMT about trading on the rising France bond yield.

Check out the interview to find out more about investing your money in forex, as well as some trading ideas about EUR/USD.

Below is a summary of the above specific question:

"I have a question. Any thoughts on what kind of trading opportunities may exist in US ETFs or currencies to play a rising France 10 yr government bond yield trend?

I am thinking potentially shorting the Euro. I use DRR ETF; or maybe EFZ Short MSCI EAFE ETF?

I appreciate your insight."

Answer by Invest Diva:
The simple and general answer to your question for most currencies is that:

When bond prices going up, interest rates go down because they have an inverse relationship and that makes the currency of that country to fall or weaken.

I assume your question is more for a longer time frame and not for intra-day trading so I'm going to answer from a long term point of view. It's going to be a bit technical so for the ones who haven't read my book yet,... please bear with me!

As you know last week the European Central Bank cut its key interest rate unexpectedly to counter a risk of deflation. They will probably do that again. When interest rates go down, that is bad for the currency so we could expect the EUR to fall further down. Now if you are trading the EUR against the USD, we should also know what the US will do.

Last month we had the government shut down so when we heard that US has added jobs this past Friday, no body bought into it because it could have been the people who went back to work after the shut-down. That is why next month's unemployment rate in December is going to be a key factor for trading EUR against USD. If unemployment rate comes out better than expected that is going to force the US government to cut QE AKA quantitative easing which will strengthen the USD. If the unemployment rate comes worse than expected it will be good for the stock market and the ETFs, which means you would want to buy into it, but it will be bad for the dollar.

If you will be trading the EUR against the US dollar, the best scenario for shorting EUR/USD is if 1. the euro cuts interest rates, and 2. We get a better than expected unemployment rate in the US.

But as I always mention in my Invest Diva education course, you should never rely on only one method of analysis and should always confirm with all five points of what I call the Invest Diva Diamond Analysis. Those the fundamentals, Technicals, Sentiment, Capital and overall analysis. What I just talked about was covering the fundamentals. To touch a little on the technicals because I assume we are running out of time, we saw the EUR/USD held at the 50% Fibonacci level last and is now on a rise, breaking the 38% level. If the pair holds at the 23% level once the fundamental news is out, you could have a better chance of making profit by shorting the EUR.

 

For all the listeners of Wealthy radio we have prepared a 25% discount on our education course. After signing up on Investdiva.com and navigating to "Learn to Earn" page, enter the promo code WR1112 to get a 25% discount on our premium membership. It will expire end of November.

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