Commander in Pips: In fact, the Dollar shows major growth at the inflationary stage of growth and reaches peaks right at recession. If we start to analyze from the dollar stand point, we might say, that the dollar so expensive that it does not allow increasing production any more and goods are loosing attractiveness compared to rival ones. This leads to chilling out in the economy, reducing of pace of growth and turning to stagnation again that usually corresponds with rate decreases and that causes the dollar to fall. But the major lesson for us is to keep an eye on the bond market, since we know that this correlation exists although there is some lag time between those two assets. Hence, this is first application of the bond market – it is an excellent barometer of the overall economy. With some lag rising yield (reducing of price) of bond market is a bullish for Dollar, while yield decreasing (price growth) is bearish, except the fast period of risk aversion and flight to quality. During these moments safe-haven assets are growing together – as US Bonds as US Dollar. Reasons are not cyclical, but mostly technical – flow of capital into safe assets. Pipruit: And how we can I understand – whether it risk aversion or just recession since yield starts to fall? Commander in Pips: Very simple. Risk aversion appears when Fed rates are high. This is the first significant plunge on markets. Recession comes later, when the Fed has turned to decrease rates already. We even might say, that the initial plunge by risk aversion is recession start point. Pipruit: Ok, now it becomes clear. Commander in Pips: The second application is the impact on the stock market. Since stocks are treated as more risky assets than bond ones, bond’s dynamic could be nice indicator of stock market. If investors flow into bonds, it could be a signal that they are uncertain about economic perspectives and need to make their assets safer rather than to make enhanced returns on them. This will lead to a sell-off on stock markets. Later, when economic perspectives become clear and stable, investor money flows back to equities, with hope to gain higher return.