Dollar Index–Treasury Correlation
Also: Dollar Treasury Relationship, DXY Treasury Inverse Correlation
The US Dollar Index and 10-year Treasury note futures prices have a historically inverse (opposing) directional relationship. When Treasury futures prices move in their seasonal tendency (e.g., rallying from the June–July seasonal low), the Dollar Index should be declining. When Treasury prices are dropping (yields rising), the Dollar Index should be rallying. When both instruments move in the same direction simultaneously, this signals long-term indecisiveness and a large ranging consolidation environment across all correlated currency pairs. The correlation is not lockstep pip-for-pip; it is a directional bias tool for qualifying long-term trending versus consolidating environments.
Identification3
- Treasury futures prices rallying + Dollar Index declining = seasonal tendency in effect; trending environment expected
- Treasury futures prices declining + Dollar Index rallying = seasonal tendency inverse in effect; trending environment expected
- Treasury futures prices and Dollar Index moving same direction = consolidation; range-bound currency pairs expected
Invalidation1
- Both instruments moving in tandem negates the directional bias signal and points to large consolidation instead
Inferred Conditions (Unvalidated)
- Currency pairs will be in large consolidations when both Dollar Index and Treasury prices are range-bound and moving together
- Explosive trending moves in currency pairs occur when Treasury seasonal tendency is in effect AND Dollar Index supports it with inverse movement
- Long-term position trades are only favoured when this correlation is confirmed; short-term and day trades are favoured in consolidation
ICT Quotes
"If the market showing the tendency to be in a large consolidation, why, because both yield and dollar 10 year treasuries and the dollar are moving in the same direction. If that occurs, what we're looking at is long term and decisiveness. And that means because both of them are moving in tandem, the likelihood of a continued directional trade higher or lower for either one is highly unlikely."
"If we see times when the Treasury market is, in fact, moving in its seasonal tendency, and the dollar is supporting that same seasonal tendency, then we have a strong probability of a directional long term trend. And that's where the large funds placed their money."
Timeframes
Version History1 version
44-ICT Mentorship Core Content - Month 5 - Using 10 Year Notes In HTF Analysis.srt
"If the market showing the tendency to be in a large consolidation, why, because both yield and dollar 10 year treasuries and the dollar are moving in the same direction."
Initial definition from January 2017 mentorship lesson 2.1
Notes
The mid-2016 consolidation in EUR/USD and GBP/USD was attributed by ICT to this tandem movement of the Dollar Index and Treasury notes. The Brexit vote was cited as the exogenous event that broke the consolidation. When the November 2016 Trump election dropped Treasury prices (raised yields) and simultaneously sent the Dollar higher, the two instruments diverged inversely — producing a multi-month trending environment in Dollar pairs.