For the first time since 2005, the 2-Year/10-Year yield curve inverted in the US bond market. An inverted yield curve means that the yield on 10-Year Treasuries trade below the yield of 2-Year Treasuries, suggesting that bond traders don’t see a bright future ahead. The yield moves opposite of the price, so as yields drop the price increases. The majority of analysts and economists view and inverted yield curve as a messenger for a recession. The last five times this inversion occurred, the US economy entered a recession.

Over the past years, many ignored the US yield curve as the Federal Reserve kept interest rate near zero and supplied three rounds of quantitative easing. This was done in reaction to the 2008 global financial crisis and the U Great Recession which followed. The US central bank hoped to buy the economy enough time to heal and grow on its own. Since the Fed ended its QE purchases and started to increase interest rates, the yield curve started to slowly become more interesting.

The US Dollar has enjoyed a very strong 2018 despite a series of headwinds and surprised many forex traders. Everything appeared to work just fine for US Dollar bulls, until it doesn’t anymore. As 2018 is slowly winding down, those headwinds are blowing harder and the ultimate price may be paid by the US Dollar. The interest rate increases by the FOMC of the US Fed have added to the bullish sentiment, but are also inserting bearish pressures into the US Dollar environment. The FOMC is set to increase rates three to four times in 2019 and this has created a double edged sword.