Category: Fixed Income

Treasury, municipal and corporate bonds

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Gold and the Dollar: The Putin factor

Spot gold is normally a reliable indicator of inflation expectations, but rising tensions over Ukraine and Crimea are likely to increase demand for gold as a safe haven. The yellow metal broke through resistance at $1350/ounce but is retracing to test the new support level. Respect of the rising trendline would confirm an advance to $1420. Crossover of 13-week Twiggs Momentum above zero (and earlier bullish divergence) signals a primary up-trend. Breakout above $1420 still appears some way off, but would offer a target of $1600/ounce*.

Spot Gold

* Target calculation: 1400 + ( 1400 – 1200 ) = 1600

Treasury yields are easing, with the yield on ten-year Treasury Notes again testing support at 2.60 percent. Consolidation between 2.60 and 2.80 percent would be a bearish formation. Breakout above 2.80 would indicate an advance to 3.50 percent*; confirmed if there is follow-through above 3.00 percent. But bearish divergence on 13-week Twiggs Momentum continues to warn of weakness and breach of primary support at 2.50 percent would signal a primary down-trend.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

The Dollar Index is falling, in line with softer Treasury yields. Breach of support at 79.00 would confirm a primary down-trend. A 13-week Twiggs Momentum peak below zero also suggests weakness.

Dollar Index

* Target calculation: 79.0 – ( 81.5 – 79.0 ) = 76.5

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Dollar falls: Outflow to safe haven?

Rising gold prices would normally signal increased inflation expectations and higher Treasury yields, but the present situation is distorted by tensions in Ukraine and increased demand for gold as a safe haven. The yield on ten-year Treasury Notes found support at 2.60 percent and is now testing medium-term resistance at 2.80 percent. Breakout would indicate an advance to 3.50 percent*; confirmed if there is follow-through above 3.00 percent. Bearish divergence on 13-week Twiggs Momentum continues to warn of weakness and reversal below 2.60 remains as likely, testing primary support at 2.50 percent.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

Rising Treasury yields and a weakening dollar may reflect international outflows from the Dollar in search of a safe haven. The Dollar Index is testing primary support at 79.50/79.60. Breach would signal a primary down-trend; confirmed if support at 79.00 is broken. The 13-week Twiggs Momentum peak below zero suggests further weakness.

Dollar Index

* Target calculation: 79.5 – ( 81.5 – 79.5 ) = 77.5

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Dollar and treasury yields weaken

The yield on ten-year Treasury Notes is testing support between 2.60 and 2.65 percent. Breach would continue the correction to primary support at 2.50 percent. Bearish divergence on 13-week Twiggs Momentum warns of weakness. Breach of 2.50 would offer a target of 2.00 percent, while recovery above 2.75 would indicate an advance to 3.50 percent* — confirmed if there is a breakout above 3.00 percent.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

Lower yields would suggest dollar weakness. A monthly chart shows the Dollar Index ranging between 80.00 and 81.50 over the past four months. Breach of the rising trendline indicates trend weakness and a break of support at 80.00 would test primary support at 79.00. Breach of primary support, and/or a 13-week Twiggs Momentum peak below zero, would signal a primary down-trend.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 79 ) = 84 or 79 – ( 84 – 79 ) = 74

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Dollar finds strong support

The yield on ten-year Treasury Notes is heading for another test of resistance at 3.00 percent after encountering buying pressure above primary support at 2.50. Bearish divergence on 13-week Twiggs Momentum, however, continues to warn of weakness. Breach of 2.50 is unlikely, but would offer a target of 2.00 percent. Breakout above 3.00 would signal an advance to 3.50 percent*.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

The Dollar Index encountered strong support at 80, indicating another test of 81.50 is likely. Breakout would signal a primary advance to 83.00*. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal. Reversal below 79.70 is unlikely, but would warn of a primary down-trend.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 80 ) = 83

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Firming Treasury yields support the Dollar

The yield on ten-year Treasury Notes recovered above resistance at 2.75 percent after penetrating the descending trendline, suggesting the correction is over. Follow-through (above say 2.80) would indicate another test of 3.00 percent. Bearish divergence on 13-week Twiggs Momentum, however, continues to warn of weakness. Breach of 2.50 is unlikely, but would offer a target of 2.00 percent*.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

The Dollar Index continues to test resistance at 81.50. Breakout would signal a primary advance to 83.00*. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal. Reversal below 79.70 is unlikely, but would warn of a primary down-trend — strengthened if support at 79.00 is broken.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 80 ) = 83

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Interest Rates and the Dollar: Not much change

The yield on ten-year Treasury Notes is headed for a test of primary support at 2.50 percent after penetrating the rising trendline. Bearish divergence on 13-week twiggs Momentum strengthens the signal and reversal below zero would warn of a primary down-trend. Breach of 2.50 remains unlikely, but would offer a target of 2.00 percent*.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

Despite falling yields, the Dollar Index is testing resistance at 81.50. Breakout would signal a primary advance to 83.00*. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal. Reversal below 79.70 is less likely, but would warn of another test of support at 79.00.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 80 ) = 83

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US interest rates and the Dollar

The yield on ten-year Treasury Notes broke support at 2.75 percent after penetrating the rising trendline. Both warn of trend weakness. Bearish divergence on 13-week Twiggs Momentum strengthens the signal and reversal below zero would warn of a primary down-trend. Breach of support at 2.50 still seems unlikely, but would offer a target of 2.00 percent*.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

The Dollar Index, on the other hand, appears headed for another test of resistance at 81.50. Breakout would signal a primary advance to 83.00*, while recovery of 13-week Twiggs Momentum above zero would strengthen the signal. Reversal below 79.80 cannot be ruled out, with long-term rates falling, and would warn of another test of primary support at 79.00.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 80 ) = 83

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Gold Bugs bullish

The Gold Bugs Index, representing un-hedged gold stocks, is often a leading indicator of spot prices. Bullish divergence on 13-week Twiggs Momentum suggests that a bottom is forming and is strengthened by breach of the descending trendline. Only recovery above 280 would signal reversal to a primary up-trend, but retracement that respects support at 190 would be a bullish indication.

Gold Bugs Index

Dollar Index

Rising interest rates and a stronger dollar, however, are likely to exert downward pressure on gold.

The yield on ten-year Treasury Notes respected resistance at 3.00 percent. Breach of support at 2.75 and the rising trendline would test primary support at 2.50, but failure of this level is unlikely. Breakout above 3.00 is more likely and would offer a target of 3.50 percent*.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

The Dollar Index is again testing resistance at 81.50 after a bullish higher trough and breach of the descending trendline. Breakout would signal a primary advance to 83.00*, while recovery of 13-week Twiggs Momentum above zero would strengthen the signal. Respect of resistance is less likely, but reversal below 80 would warn of further weakness.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 80 ) = 83

Spot Gold

Spot gold respected long-term support at $1200/ounce and is testing resistance at $1260/ounce as well as the descending trendline. Respect would signal another test of $1200, while breakout above $1260 would suggest that a bottom is forming. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal. Failure of $1200, however, would warn of a decline to 1000*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Gold miners warn of weaker spot price

The Gold Bugs Index, often a leading indicator of spot prices, is headed for a test of the 2008 low at 150 after breaking support at 210. A 13-week Twiggs Momentum peak below zero suggests continuation of the primary down-trend.

Gold Bugs Index

The ASX Gold Index also signals another decline after breaking support at 2000. Retracement that respects the new resistance level would strengthen the signal.

ASX Gold Index

Spot gold has not yet broken support at $1200/ounce, but the metal is likely to follow the two miners indices. A 13-week Twiggs Momentum peak below zero would strengthen the signal. Breach of primary support would offer a target of $1000/ounce*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Dollar Index

Higher interest rates and a stronger dollar would increase downward pressure on gold.

The yield on ten-year Treasury Notes is headed for a test of 3.00 percent after breaking medium-term resistance at 2.75. Breakout would indicate a primary advance to 3.50 percent*. Reversal below the rising trendline is unlikely, but would warn of another test of 2.50. Higher yields are likely to strengthen the dollar.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

The Dollar Index retraced to test medium-term resistance at 80.50. Breach of the declining trendline would suggest a rally to 81.50. Continuation of the decline is unlikely after Fed commencement of the taper and upward breakout above 81.50 would signal a primary advance. Recovery of 13-week Twiggs Momentum above zero would strengthen the signal.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 79 ) = 84

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Gold support at $1200

Gold

The long tail on this week’s candle reflects buying support for spot gold at $1200/ounce. Recovery above $1250 would suggest another rally to $1350. But the 63-day Twiggs Momentum peak below zero warns of a down-trend. And breach of primary support at $1200 would confirm.

Spot Gold

* Target calculation: 1250 – ( 1350 – 1250 ) = 1150

Often a leading indicator of spot prices, the Gold Bugs Index, representing un-hedged gold stocks, continues in a primary down-trend after breaking support at 210. Completion of a 13-week Twiggs Momentum peak below zero would strengthen the signal.

Gold Bugs Index

Dollar Index

The yield on ten-year Treasury Notes broke through medium-term resistance 2.75, suggesting a primary advance to 3.50 percent*. Breakout above 3.00 percent would confirm. Reversal below the rising trendline is unlikely, but would warn of trend weakness and another test of 2.50. Higher yields are likely to strengthen the dollar.

10-Year Treasury Yields

* Target calculation: 3.00 + ( 3.00 – 2.50 ) = 3.50

The Dollar Index shows evidence of strong support at 80.50, consolidating in a narrow band between 80.50 and 81.00 over the last 2 weeks. Upward breakout would suggest a primary advance; confirmed if resistance at 81.50 is broken. Breach of support at 80.50 remains as likely and would warn of another test of primary support at 79.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 79 ) = 84

Higher interest rates and a stronger dollar would increase downward pressure on gold.

Crude Oil

Nymex crude penetrated its downward trendline but this first bear rally may not be the last. Expect resistance between $98 and $100/barrel. Respect remains likely and would indicate another test of support at $92. Brent crude reflects global supply constraints and is likely to find strong support at $100/barrel.

Brent Crude and Nymex Crude

Commodity Prices

A rising Shanghai Composite Index is supporting commodity prices. Recovery of the Dow Jones-UBS Commodity Index above 126 would indicate a bear trap. Breakout above 130 would suggest reversal to a primary up-trend; and cross-over of 13-week Twiggs Momentum above zero would strengthen the signal. Respect of resistance at 126 and a primary decline now appear unlikely.

Dow Jones UBS Commodities Index

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