A closer look at the effects of recent bank failures to DXY.
Just a new trader learning about DXY.
DXY is the dollar value relative to international currencies. And a positive DXY makes everything more expensive, thus it has an inverse relationship with the stock market. I wanted to know how it will react to upcoming bank failures. So I looked back at the 2023 bank failures.
1. Generally speaking bank failures had a negative effect on DXY. You can see the yellow line from left to right measuring lower highs of DXY. This makes sense as banking institutions fail, the strength of US dollar wanes. DXY goes lower with every bank fail. Heartland Tri-State was the outlier, possibly due to it's limited size.
2. It's is important to verify a few things taken for granted in general knowledge. During multiple bank failures, there's flights to safety. This is confirmed with BTC surging from Almena State Bank failure. Surprisingly there was also a similar flight into the general stock market, represented by S&P500 (orange line).
Conclusion: When bank fails, there is a negative effect on DXY (yellow line). Bank failures had an inverse relationship with S&P500 (orange line) & BTC (gray line), confirming the flight to safety aspect of liquidity. Therefore, I expect near term decline of DXY to have a positive influence on the Crypto Market. Even though past data shows a similar flight to safety into the S&P500, we want to caution holding a wide array of stocks as some might be negatively impacted by a lack of liquidity and higher interest rates on debt.
Will March 11 expiration of FED's Emergency Lending cause banks to fail? And will it negatively effect DXY?
DXY is the dollar value relative to international currencies. And a positive DXY makes everything more expensive, thus it has an inverse relationship with the stock market. I wanted to know how it will react to upcoming bank failures. So I looked back at the 2023 bank failures.
1. Generally speaking bank failures had a negative effect on DXY. You can see the yellow line from left to right measuring lower highs of DXY. This makes sense as banking institutions fail, the strength of US dollar wanes. DXY goes lower with every bank fail. Heartland Tri-State was the outlier, possibly due to it's limited size.
2. It's is important to verify a few things taken for granted in general knowledge. During multiple bank failures, there's flights to safety. This is confirmed with BTC surging from Almena State Bank failure. Surprisingly there was also a similar flight into the general stock market, represented by S&P500 (orange line).
Conclusion: When bank fails, there is a negative effect on DXY (yellow line). Bank failures had an inverse relationship with S&P500 (orange line) & BTC (gray line), confirming the flight to safety aspect of liquidity. Therefore, I expect near term decline of DXY to have a positive influence on the Crypto Market. Even though past data shows a similar flight to safety into the S&P500, we want to caution holding a wide array of stocks as some might be negatively impacted by a lack of liquidity and higher interest rates on debt.
Will March 11 expiration of FED's Emergency Lending cause banks to fail? And will it negatively effect DXY?
Penafian
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