Category: Forex

Coverage of all major currencies and the US Dollar Index.

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Gold retreats as Dollar strengthens

  • Treasury yields weaken further
  • The Dollar continues to strengthen
  • Inflation target remains at 2% p.a.
  • Gold retreats

Interest Rates and the Dollar

The yield on ten-year Treasury Notes broke support at 2.50 percent, indicating a test of 2.00 percent*. 13-Week Twiggs Momentum below zero warns of a primary down-trend. Follow-through below 2.40 would confirm. Recovery above 2.65 is unlikely, but would indicate the correction is over, with a medium-term target of 2.80 and long-term of 3.00 percent.

10-Year Treasury Yields

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

The Dollar Index followed-through above 80.50 and is headed for another test of 81.00. Recovery of 13-week Twiggs Momentum above zero suggests a primary up-trend. Breakout above 81.00 would strengthen the signal; and 81.50 would confirm. Breach of 80.00 is unlikely at present, but would warn of another test of primary support at 79.00.

Dollar Index

Low interest rates and a stronger dollar suggest inflation expectations are falling, but this is not yet evident on the TIPS spread. The 5-year Breakeven rate (5-Year Treasury Yield minus 5-Year Inflation-Indexed Yield) remains at 2.0 percent.

5-Year Treasury Yield minus 5-Year Inflation Indexed (TIPS) Yield

Gold

Gold is nonetheless falling, in line with weaker inflation expectations. Breach of short-term support at $1295/$1300 would test $1240/$1250. And breach of $1240 would signal another primary decline, with an intermediate target of $1100*. Oscillation of 13-week Twiggs Momentum around zero, however, suggests hesitancy, with no strong trend. Recovery above $1350 is unlikely at present, but would indicate another test of $1400/$1420.

Spot Gold

* Target calculation: 1250 – ( 1400 – 1250 ) = 1100

When we compare long-term crude prices (Brent Crude) to gold, it is evident that crude prices tend to lead and gold to follow. The main reason is the impact that higher crude prices have on inflation, increasing demand for gold as an inflation hedge. Crude prices currently remain high, but it remains to be seen whether gold will follow as usual.

Gold and Crude

Gold prices adjusted for inflation suggest the opposite. There are two enormous spikes on the chart, both flagging times of great financial uncertainty. The first is spiraling inflation of the early 1980s and the second is the all-in balance sheet expansion (also known as quantitative easing) by central banks after the global financial crisis. Gold prices remain elevated and are likely to fall further as central banks curtail expansion.

Gold and CPI

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Gold retreats as Dollar strengthens

  • Treasury yields remain weak
  • The Dollar strengthens
  • Inflation looks weak despite rising TIPS spread
  • Gold retreats

Interest Rates and the Dollar

The yield on ten-year Treasury Notes continues to test support at 2.50 percent. Failure would indicate a decline to 2.00 percent; follow-through below 2.40 would confirm. 13-Week Twiggs Momentum below zero continues to warn of a primary down-trend. Recovery above 2.65 is less likely, but would suggest the correction is over, with a medium-term target of 2.80 and long-term of 3.00 percent.

10-Year Treasury Yields

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

The Dollar Index found short-term support at 80.00. Follow-through above 80.50 indicates another test of 81.00. Recovery of 13-week Twiggs Momentum suggests a primary up-trend. Breakout above 81.00 would strengthen the signal; above 81.50 would confirm. Breach of 80.00 is unlikely at present, but would warn of another test of primary support at 79.00.

Dollar Index

Low interest rates and a stronger dollar suggest inflation expectations are falling, but this is not yet evident on the TIPS spread (10-Year Treasury Yields minus 10-Year Inflation-Indexed Yields).

10-Year Treasury Yields minus 10-Year Inflation Indexed (TIPS) Yields

Gold

Gold is nonetheless falling, in line with weaker inflation expectations. Follow-through below $1300 would test support at $1240. And breach of $1240 would threaten another primary decline, with a target of $1000*. Oscillation of 13-week Twiggs Momentum around zero, however, suggests hesitancy, with no strong trend. Recovery above $1350 is unlikely at present, but would indicate another test of $1400/$1420.

Spot Gold

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

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Aussie Dollar: Should RBA ‘lean against the wind’?

The Euro rallied to resistance at $1.37 after testing primary support at $1.35 and the rising long-term trendline. Recovery above $1.37 would suggest a rally to $1.39/$1.40, but descending 13-week Twiggs Momentum remains below zero, warning of weakness. Breach of $1.35 is equally likely and would signal a decline to $1.31*.

Euro/USD

* Target calculation: 1.35 – ( 1.39 – 1.35 ) = 1.31

The Aussie Dollar is again testing resistance at $0.94. 13-Week Twiggs Momentum holding above zero suggests continuation of the up-trend. Follow-through above $0.95 would suggest a target of $0.97. Reversal below $0.92 is unlikely at present, but would warn of a decline to the band of support between $0.87 and $0.89.

Aussie Dollar

A monthly chart of the Euro against the Swiss Franc shows how the Swiss central bank intervened in 2011 to prevent further appreciation against the Euro and protect local industry. The Australian central bank faced a similar challenge in 2011, but from a different cause, with the Aussie Dollar rising strongly against the greenback on the back of a mining investment boom. The RBA sat on its hands and failed to “lean against the wind” as called for by Prof Warwick McKibbin. Local industry has suffered irreparable damage in the ensuing period.

Aussie Dollar

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Gold strengthens on Dollar weakness

  • Treasury yields weaken
  • The Dollar continues to test long-term support
  • Gold is strengthening

Interest Rates and the Dollar

The yield on ten-year Treasury Notes is again testing support at 2.50 percent. Failure would indicate a decline to 2.00 percent. Follow-through below 2.40 would confirm. Market expectations favor low interest rates and 13-Week Twiggs Momentum below zero continues to warn of a primary down-trend. Recovery above 2.65 is less likely, but would suggest the correction is over, offering a medium-term target of 2.80 and long-term of 3.00 percent.

10-Year Treasury Yields

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

The Dollar Index tests short-term support at 80.00. Respect of zero by 13-week Twiggs Momentum warns of continuation of the primary down-trend. Breach of 80.00 would indicate a test of primary support at 79.00. Recovery above 80.50 is unlikely at present, but would suggest an advance to 81.50.

Dollar Index

Gold

Low interest rates and higher inflation expectations favor a stronger gold price and a weaker Dollar. Gold is consolidating in a narrow band below medium-term resistance at $1325/$1330, suggesting continuation of the rally. Breakout would signal a test of $1400. Recovery of 13-week Twiggs Momentum above zero hints at a primary up-trend; breakout above $1400 would confirm. Retreat below $1300 is unlikely, but would test support at $1240.

Spot Gold

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Gold rallies as inflation expectations rise

Overview:

  • Treasury yields are recovering
  • Inflation expectations rise
  • The Dollar weakens
  • Gold rallies

Interest Rates and the Dollar

The yield on ten-year Treasury Notes found support at 2.50 percent. Recovery above 2.65 would suggest the correction is over, offering a medium-term target of 2.80 and long-term of 3.00 percent. 13-Week Twiggs Momentum below zero continues to indicate weakness. Reversal below 2.40 would signal a decline to 2.00 percent* — confirmed if yield follows through below 2.40 percent.

10-Year Treasury Yields

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

Long-term inflation expectations, indicated by 10-Year Treasury Yields minus 10-Year Inflation-Indexed (TIPS) Yields below, turned upward after 12-month CPI jumped to 1.8 percent in May, but are still range-bound between 2.0 and 2.50 percent.

10-Year Treasury Yields minus 10-Year Inflation Indexed (TIPS) Yields

The Dollar Index continues to head for primary support at 79.00 after retreating below 80.50. Respect of zero by 13-week Twiggs Momentum warns of continuation of the primary down-trend. Recovery above 80.50 is unlikely at present, but would suggest an advance to 81.50.

Dollar Index

Gold

Gold is testing medium-term resistance at $1325/$1330. Breakout would signal a test of $1400. Recovery of 13-week Twiggs Momentum above zero hints at a primary up-trend; breakout above $1400 would confirm. Retreat below $1280 is unlikely, but would warn of the opposite; confirmed if support at $1240 is breached.

Spot Gold

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EconoMonitor » China, Not Piketty, Explains ‘Confused Signals’ in U.S. Asset Prices

From Benn Steil & Dinah Walker:

As for bond prices, China’s central bank holds the key.After more than three years of steady appreciation, the RMB has declined over 3% this year – erasing the past year’s rise. Driven by the Chinese government’s desire to re-juice failing economic growth, RMB depreciation has naturally been accompanied by an increase in China’s foreign exchange reserves.China usually allocates about 40 percent of its foreign exchange reserves to Treasuries; so far this year, however, its official holdings of Treasuries have actually declined. What explains this? Given that China comes under pressure from the U.S. Treasury and Congress whenever it appears to be pushing down its currency, China is almost certainly disguising its Treasury purchases by holding them in Belgium.

Read more at EconoMonitor : EconoMonitor » China, Not Piketty, Explains ‘Confused Signals’ in U.S. Asset Prices.

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Aussie Dollar threatens breakout, Euro tests support

The Aussie Dollar continues to test resistance at $0.94. Recovery of 13-week Twiggs Momentum above zero suggests continuation of the up-trend, testing resistance at $0.97. Reversal below $0.92 is unlikely at present, but would warn of a decline to the band of support between $0.87 and $0.89.

Aussie Dollar

The Euro respected primary support at $1.35 and the rising long-term trendline. Recovery above $1.37 would suggest a rally to $1.39/$1.40, but descending 13-week Twiggs Momentum crossed below zero, warning of weakness. Breach of $1.35 would signal a decline to $1.31*.

Euro/USD

* Target calculation: 1.35 – ( 1.39 – 1.35 ) = 1.31

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Gold rallies as the Dollar weakens

Overview:

  • Treasury yields weaken
  • The Dollar weakens
  • Gold rallies

Interest Rates and the Dollar

The yield on ten-year Treasury Notes is headed for another test of primary support at 2.50 percent. Follow-through below 2.40 would would signal a decline to 2.00 percent*. 13-Week Twiggs Momentum continues below zero, indicating weakness. Recovery above the descending trendline is unlikely at present, but would suggest another attempt at 3.00 percent.

10-Year Treasury Yields

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

The Dollar Index retreated below resistance after a false break above 80.50. Recovery above 80.50 would suggest an advance to 81.50, but respect of zero by 13-week Twiggs Momentum warns of continuation of the primary down-trend.

Dollar Index

Gold

A weaker Dollar helped gold break its descending trendline, ending the correction. Expect a test of $1400. Whipsawing of 13-week Twiggs Momentum around the zero line, however, indicates indecision and reversal below zero would warn of further weakness. Retreat below $1280 would warn of a test of primary support at $1200.

Spot Gold

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Gold bearish as dollar base strengthens

Overview:

  • Treasury yields recover
  • The Dollar establishes a base
  • Gold bearish

Interest Rates and the Dollar

The yield on ten-year Treasury Notes made a false break through primary support at 2.50 percent, before recovering to 2.60 percent*. 13-Week Twiggs Momentum below zero continues to suggest weakness. Recovery above 2.80 remains unlikely at present, while reversal below 2.50 would signal a decline to 2.00 percent.

10-Year Treasury Yields

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

The Dollar Index completed a double-bottom reversal, breaking through resistance at 80.50, but last week’s tall shadow (wick) warns of selling pressure. Reversal below 80.00 would indicate a test of primary support at 79.00, but 13-week Twiggs Momentum recovery above zero is bullish and follow-through above 81 would suggest a primary up-trend. Breakout above 81.50 would confirm.

Dollar Index

* Target calculation: 81.5 + ( 81.5 – 79.0 ) = 84.0

Gold

Low inflation and a strengthening Dollar reduce demand for precious metals. Gold found short-term support at $1240, but reversal of 13-week Twiggs Momentum below zero is bearish. Expect a test of primary support at $1200. Recovery above $1300 is unlikely, but would warn of a bear trap and rally to $1400.

Spot Gold

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Gold tumbles as Treasury yields fall

Overview:

  • Treasury yields fall
  • The Dollar strengthens slightly
  • Stocks are rising
  • Gold breaks support

Interest Rates and the Dollar

The yield on ten-year Treasury Notes broke primary support at 2.50 percent, warning of a decline to 2.00 percent*. Reversal of 13-week Twiggs Momentum below zero confirms weakness. Recovery above 2.80 is most unlikely at present, but would indicate another advance.

10-Year Treasury Yields

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

The Dollar Index is testing resistance at 80.50. Recovery of 13-week Twiggs Momentum above zero would increase the chances of a double-bottom reversal (to a primary up-trend), but respect of resistance remains as likely and would test primary support at 79.00. Another 13-week Twiggs Momentum peak below the zero line would signal continuation of the primary down-trend.

Dollar Index

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

Stocks and Housing

Falling long-term interest rates are likely to boost the housing sector and the broader stock market. The Dow Jones Industrial Average is heading for a test of the recent high at 16750. Rising 21-day Twiggs Money Flow signals medium-term buying pressure. Retracement that respects support at 16500 would confirm an advance to 17000*.

Dow Jones Industrial Average

* Target calculation: 16.5 – ( 16.5 – 16 ) = 17

Gold and Silver

Gold faces conflicting forces: low inflation reduces demand for precious metals, but low interest rates and a weaker Dollar increase demand. At present low inflation seems to have the upper hand, driving gold through support at $1300/$1280 per ounce. Expect a test of primary support at $1200. Reversal of 13-week Twiggs Momentum below zero reinforces the bear signal. Recovery above $1300 is most unlikely, but would warn of a bear trap and rally to $1400.

Spot Gold

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