Forex Archives - Page 25 of 58 - the patient investor

October 15, 2014

Treasury yields plunge

The yield on ten-year Treasury Notes broke primary support at 2.00%, plunging to a low of 1.86% in the morning before recovering to 2.10% at the close. Expect strong support at 2.00*. 13-Week Twiggs Momentum (below zero) has been warning of a primary down-trend for some time. Recovery above 2.30 is unlikely at present.

10-Year Treasury Yields

* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00

Falling inflation expectations are behind the drop, with the 5-year inflation breakeven rate — 5-year treasury yields minus the 5-year TIPS rate — making a new 2-year low.

5-Year Inflation Breakeven Rate

A falling dollar suggests that domestic purchases are driving the surge in Treasury prices, rather than international buyers. The Dollar Index is testing its new support level at 84.50. Respect would confirm a primary advance with a target of 89*. Rising 13-week Twiggs Momentum continues to indicate a healthy (primary) up-trend. Failure of support at 84.50 is unlikely, but breach of the secondary trendline would warn of a correction to the primary (trendline).

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

Low interest rates strengthen demand for gold as they reduce the carrying cost.

October 9, 2014

Dollar and interest outlook fall

The Dollar Index is retracing to test its new support level at 84.50. Respect would confirm a primary advance with a target of 89*. Rising 13-week Twiggs Momentum continues to indicate a healthy primary up-trend. Failure of support (84.50) is unlikely, but breach of the secondary trendline would warn of a correction to the primary line.

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

The yield on ten-year Treasury Notes is again testing primary support at 2.30. Breach would signal a decline to 2.00*. A 13-week Twiggs Momentum peak below zero suggests a continued primary down-trend. Recovery above 2.65 is unlikely, but would indicate an advance to 3.00.

10-Year Treasury Yields

* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00

Low interest rates would weaken the Dollar and strengthen demand for gold.

October 7, 2014

Dollar retraces

The Dollar Index is retracing to test its new support level at 84.50. Respect would confirm a primary advance with a target of 89*. Rising 13-week Twiggs Momentum indicates a healthy primary up-trend. Failure of support is unlikely, but would warn of a correction to the primary trendline.

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

October 7, 2014

Reserve currency status: Privilege or burden?

Is the reserve currency status of the US Dollar a privilege or a burden? Michael Pettis suggests the latter and argues in favor of constraining unlimited purchases of US or other government bonds by international trading partners like China and Japan:

…it is actually quite easy to list the conditions under which reserve currency status encourages growth and the conditions under which it forces a rise either in debt or in unemployment. In advanced countries with deep and flexible financial markets, except in the case in which capital has become severely constrained by the need for money to be backed by gold, or real interest rates have been forced up to extremely high levels in order to break inflation as was the case in the late 1970s and early 1980s, the net inflows associated automatically with reserve currency status will not result in an increase in productive investment. They only result in an increase either in debt or in unemployment.

This is not an argument in favor of returning to gold, by the way. It is completely neutral on the issue. This argument simply restates the Keynesian insight that eliminating the discipline imposed by the gold standard is likely to become destabilizing unless there is another way to impose discipline…..

….the potentially destabilizing effect is no longer so distant. In a recent essay I tried to show that if we have not already reached the point at which the dominant reserve currency status of the US dollar is harmful to the US and potentially destabilizing to the world, logically we will inevitably reach that point, and probably soon….

I have frequently argued that capital account inflows into US Treasuries artificially inflate the dollar, give trading partners a competitive advantage, and cause the loss of millions of manufacturing jobs. Failure to address this issue is one of the major causes of low wage growth and rising inequality in the US.

September 27, 2014

Australian investors

Australian stocks have taken a bit of a beating over the last few weeks, including a few of the momentum stocks in our portfolio. Risk of a bear market remains low, but a falling Aussie Dollar has prompted international investors to scale back exposure to Australian equities.

AUDUSD

This tends to become self-reinforcing as falling stock prices then prompt further sell-offs. And repatriation causes further weakness in the Aussie Dollar. The down-trend is likely to continue if support at $0.8650/$0.8700 is breached.

Investors who split their portfolio between the S&P 500 and the ASX 200 have been cushioned from the fall, with their US portfolio showing strong appreciation in Australian Dollar terms.

September 25, 2014

Gold threatens four-year low

Gold & Silver

Silver broke long-term support at $18.50 per ounce, offering a target of $15.50/ounce*. First, expect retracement to respect the new resistance level. Gold is likely to follow Silver to a new four-year low.

Spot Silver

* Target calculation: 18.5 – ( 21.5 – 18.5 ) = 15.5

Gold respected the new resistance level at $1240/ounce and is now testing $1200. Follow-through below $1180 would offer a long-term target of $1000*, while respect would suggest another rally to $1240. Declining 13-week Twiggs Momentum, below zero, further strengthens the bear signal.

Spot Gold

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

Gold Bugs Index (representing un-hedged gold stocks) is also testing long-term support. Breach of support at 200 would strengthen the bear signal for Gold.

Gold Bugs Index

Interest Rates and the Dollar

Rising Treasury yields and a stronger Dollar both add downward pressure to Gold. Higher interest rates increase the carrying cost of gold, while the Dollar competes with Gold both as a safe haven and as an appreciating asset (against other currencies).

The Dollar Index broke through resistance at the 2013 high of 84.75. Rising 13-week Twiggs Momentum, above zero, signals a primary up-trend. Expect retracement to test the new support level. Respect is likely and would offer a long-term target of 89*. Reversal below 84.50 is unlikely, but would warn of a correction.

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

The yield on ten-year Treasury Notes respected resistance at 2.65 percent and is retracing to test support at 2.50. Follow-through above 2.70 would signal an advance to 3.00, but 13-week Twiggs Momentum below zero continues to suggest a primary down-trend. Failure of support at 2.50 would indicate another test of primary support at 2.30.

10-Year Treasury Yields

* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00

September 17, 2014

Gold and silver fall

Gold respected the new resistance level at $1240 after a brief retracement, confirming a primary down-trend. Declining 13-week Twiggs Momentum below zero strengthens the bear signal. Expect further support at $1200/ounce, breach would add further confirmation.

Spot Gold

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

Silver is testing primary support at $18.50 per ounce. Breach of support would signal a down-trend and strengthen the bear signal for gold. Respect is unlikely, but would suggest further consolidation.

Spot Silver

Interest Rates and the Dollar

A rising Dollar and rising Treasury yields both put downward pressure on gold.

The Dollar Index is testing resistance at the 2013 high of 84.50. Rising 13-week Twiggs Momentum above zero signals a primary up-trend. Reversal below 81.50 is most unlikely. Upward breakout would offer a long-term target of 89*.

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

The yield on ten-year Treasury Notes broke resistance at 2.50 percent and is now consolidating at 2.60. Follow-through above 2.65 would signal an advance to 3.00. Respect would signal a decline to 2.00 percent*. 13-Week Twiggs Momentum recovery above zero would suggest a primary up-trend.

10-Year Treasury Yields

* Target calculation: 2.65 + ( 2.65 – 2.30 ) = 3.00

September 16, 2014

Aussie dollar leads ASX lower

The Australian Dollar found short-term support at $0.90 after last week’s fall. Reversal of 13-week Twiggs Momentum below zero warns of another decline, but expect support at $0.89/$0.90 and at $0.8650/$0.8700. Breach of the latter would confirm a target of $0.80*.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 is testing a wide band of support between 5420 and 5460. Reversal of 21-day Twiggs Money Flow below zero warns of strong selling pressure. Breach of the rising trendline would suggest a correction to test the primary trendline around 5000. Support levels are indistinct because of frequent back-filling, however, and could establish anywhere between 5300 and 5450.

ASX 200

The ASX 200 VIX is rising, but levels below 20 are typical of a bull market.

ASX 200

September 14, 2014

Bad Has Never Looked So Good – Russia

Again from Energy Burrito at Oilprice.com:

…the Russian ruble has been gradually depreciating throughout this year amid rising geopolitical tension in Ukraine. It has now dropped 12% versus the US dollar in 2014.

Yet while a falling ruble hurts Russian imports as they become increasingly more expensive to buy, Russia reaps the rewards when it comes to exports. And it is seeing the greatest benefit from its largest export: oil. To the tune of 7 million barrels a day.

Hence, while crude prices in US dollars have dropped 12% in value since the beginning of July, crude oil in rubles has only dropped 3.4%. For Russian coffers, it is good for the ruble to be bad…

Read more at Bad Has Never Looked So Good.

September 10, 2014

Aussie Dollar & Yen break support

Dollar strength is affecting not only gold and commodities, but even the strongest of the currency crosses.

The Aussie Dollar broke support at $0.92 against the greenback, warning of a correction. Expect support at $0.89. Reversal of 13-week Twiggs Momentum below zero, however, suggests a primary down-trend — confirmed if primary support at $0.87 is penetrated. Recovery above $0.925 is unlikely, but would indicate a false break.

Aussie Dollar

The greenback similarly broke through resistance at ¥105.50 against the Japanese Yen. Rising 13-week Twiggs Momentum above zero signals a primary up-trend. Reversal below ¥105 is unlikely, but would warn of another test of ¥104.

USD/JPY

* Target calculation: 105.5 + ( 105.5 – 101 ) = 110

The Euro is already in a primary down-trend against the Dollar. Declining 13-week Twiggs Momentum, below zero, confirms a strong down-trend. Expect support at $1.2750/$1.2800, but a rally is unlikely to break the descending trendline and resistance at $1.31.

Euro/USD

* Target calculation: 1.35 – ( 1.40 – 1.35 ) = 1.30