March CPI readings were much as expected, with the annual rate at zero but core CPI (excluding food and energy) close to the Fed target of 2 percent.
Ten-year Treasury Note yields continue to consolidate in a narrow band between 1.85% and 2.00%. Breakout above resistance is more likely and would offer a target of 2.25%. 13-Week Twiggs Momentum below zero continues to indicate a primary down-trend. Recovery of long-term yields is likely to be gradual for two reasons:
- The Fed is adopting a cautious stance towards lifting short-term rates; and
- Downward pressure exerted on long-term yields by offshore (Chinese & Japanese) purchases of Treasury securities (with the intent of suppressing appreciation of their exchange rates).
A stable inflation rate and low interest rate outlook have kept the Dollar Index range-bound between 96 and 100. Rising 13-week Twiggs Momentum continues to indicate a strong primary up-trend. Breakout above 100 would signal an advance to 110*. Failure of support at 96 is unlikely.
* Target calculation: 100 + ( 100 – 90 ) = 110