Sunday, January 31, 2010

Bond Spreads - flattening doens bode well for economic recovery

Weekly chart show bond yields are trading in ranges. While it's easily visible in the 2-Year UST Bills - the 10-Year Notes are still trading inside 3.20 - 3.85 area.

10-Year Notes however in my opinion are trending higher as we now have covered the December 2009 Gap and holding above the 40-Week MA. Historical charts show evidence that since the high inflation times of the '80-ies and Paul Volcker Bond prices are still in their historical high end range and if markets are indeed mean reverting in their nature Yields are going to go up further. The timing of the exit strategy by the Fed that will signal the tightening phase is impossible for me to suggest.

The 2Y/10Y Bond Spread Steepener trade in December 2009 has fully reversed its course into Flattening one since start of 2010. When we look at the Weekly chart of the Spread we can observe the trend channel and its a flattening one and this seems to bode ill for the economic recovery that we witnessed in the latest US GDP release.

Wednesday, January 20, 2010

USD Index correlations with SPX, Gold & 10-Year US Treasury Notes' Price

December 2009 risk taking/averting correlation trade broke down. Now seems SPX is moving higher along with USD appreciation as the overlay suggests.

Gold corrected but the long-term trend is still holding above the bullish trendline.

The USD Index is looking like developing the Bullish Flag formation. I am skeptical of seeing Gold rally along with USD rally and I'm looking which one will break as I lean to the idea that Gold will correct further.

There is a cyclical pattern here in the 10-Year UST Note price and the range trade till Dec 2009 was going along the gradual depreciation of the USD.

Since Dec 2009 we have a pronounced bond selloff accompanied with USD rally which is maybe cashing out to buy on lower levels as bond yields will be watched vigilantly and they are certainly not liked above 3.60/70 as they put pressure on mortgage holders.

This is certainly a critically important factor and I'm watching closely for the developments here.

EUR/USD breaks the 200-Day MA

EUR/USD breakdown of the 200-Day MA - that's important by itself if we look at the August 2008 chart and see what happened after the pair broke down at that time.

Certainly selling on the break is very hazardous as in our time plain breaks do not happen in the old-fashioned straight way. However as I watch the EUR crosses Euro looks quite weak on all. EUR/GBP broke its 200-Day MA a few days ago and it was the 4-th test down which this time was successful and that is also significant technically. EUR/JPY also broke down off the tight MA cluster and it is going to 128 with nothing in the window below... I'm going with the break with reasonable stop so if it is faded I will have power for new tests.

Friday, January 15, 2010

GBP/USD channel top capped by 55-DMA

GBP/USD broke the resistance at the 89-DMA and now is capped by the 55-DMA as shown on the 4-hour chart.

The pound is trading at the top of the current channel structure and I'm holding short at 1.6332 with a view that unless we break higher than the recent 1.64 top we are about to correct some 200 pips lower to meet the lower channel range.

Friday, January 8, 2010

USD Index (DX) COT positioning favors USD longs

USD Index COT shows Commercials and Large traders are positioned as they were in Sept 2008.

The vertical lines show the extreme expansions and the points where the Commercials and large traders flipped from long to short and vice versa.

The obvious recap from the chart is that until the Commercials are hedging their USD downside the trend in USD is UP.

Wednesday, January 6, 2010

Crude Oil (NYMEX) in Ascending Triangle Pattern - $82 breakout level to watch

Crude Oil has been consolidating below 82 nearly 2 months in 2009 and after a brief retreat to 70 it is back on track with a trend fueled by rising momentum as ADX is above 22 and going higher.

RSI is going along and rising steeply.

The trend has been steady since the bounce off 70 level and the Resistance at 82 should be really tough.

However if that level gives way there should be at least another 12 point rally on he other side of that line.