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#Dollar Showing Weakness, Intermediately OverboughtThe U.S. dollar went bid following rhetoric from Federal Reserve officials that a potential rate hike could occur in June, following hotter than expected inflation data. However, after posting on pending technical weakness here, the dollar has retreated slightly over the last few days. Price action as traded neatly within a descending channel on the daily chart, and potential signals of another move downward are pending: The daily RSI has broken through an indicator support level, and the stochastic indicator is signaling a highly overbought condition. If price price action continues to falter, a sell signal below 80 could trigger selling pressure. The DMI is about to form a bearish convergence, which would indicated bearish price action will take over. In order to regain upward momentum, the DXY would have to close above channel resistance near 95.66; 96.55 will be key resistance point in order to challenge 98. If selling pressure does occur, DXY will likely seek out 93.80 (50% fib retracement from current minor uptrend) The long-term macro dollar theme continues to be deflationary. It is important to note, a spike in inflation has been a late cycle occurrence. Every U.S. recession since the mid-1950s has seen an increase in inflation (after previously declining). We must also include that as the global economy continues to slow, global central banks will look to continue monetary easing this will at least support the greenback. Furthermore, as the U.S. economy rolls over, a deflationary spiral is expected to occur. MacroView is still expecting the U.S. economy to reach recession between Q2-3 once final data revisions occur. If you would like to know more about MacroView's products and services, please feel free to message us. As always, comment and post charts. We love to talk markets!
TVC:DXY
by MacroView_Research
1
10 Yr Treasury Rates vs. S&P 500 The rally in long dated US treasuries over the past 35 years could easily be called the greatest bull market we've seen in modern times. 10 yr rates have been trending down in a near perfect channel for almost 30 years. Calling for the end of this rally has become a popular pastime. Due to the nature being zero bound on rates, the upper trend line will with 100% certain fail at some point. However, will the greatest bull market we've seen end without at least one more touch of the long term trend? Some recent forecasts were just released by Barron's magazine for "top wall street strategists." Link -> online.barrons.com In summary, out of 10 strategist all 10 expect higher equity prices (avg prediction 2210, ~10% from current levels). For 10 yr rates, 10 out of 10 expect higher rates for 2015 (avg predicition 3.05, almost a full percent above the current 2.1). The primary sentiment seems to be that rates are so low that they cannot possibly go lower. However, 10 yr rates of other developed countries are showing that is just not the case. Canada - 1.75%, Japan - .39%, Germany - .62%, France - .89%, Netherlands - .76%, Switzerland - .23%, Hong Kong - 1.7%. Its unclear currently to me what the primary driver will be for rates going to the 3% level referenced above. Inflation has been well in check by recent reports. Commodities prices have been trending significantly lower in aggregate. And the US dollar is looking as though it is currently breaking out of a 30 year downtrend, an event that is more likely to import deflation from abroad than to cause inflation. From a technical standpoint, as mentioned above the 10 yr rates have been trending lower in a well defined channel for over 30 years. The current question I think is whether we will get one more touch of that lower trend line before any meaningful reverse higher. Marked on the chart is a measure of the time elapsed between troughs in the 10 yr rates that occurred on this trend line. The average from 1993 has been right around 245 bars, with the shortest period being 187. If we use this as a guideline then we could expect the next trough in the 10 yr rate to occur as early as the end of next year to as late as April 2017. Depending on the timing, those periods would line up with a rate of .75% and .50% respectively. Will rates get that low? I'm not sure and there's not much value in trying to answer that right now. A move like this would clearly surprise the most people and given the right circumstances I think it is at least a possibility. More importantly though is that the current trend has been for lower rates and the current sentiment on bonds is overwhelmingly bearish. Also shown as a backdrop to the rates on the chart above is the S&P 500. It worth noting that each time the 10 yr rate has touched the bottom trend line, it has also marked an excellent entry point into stocks. But the opposite has also been true. As the 10 yr rate peaks and heads towards the bottom trend line, it has not been a great time to be long stocks. So will it be higher stock prices and higher rates for 2015 as 10 out of 10 top strategist suggest? Or might we be in store for something different. A market that chops sideways to down while rates grind lower towards that bottom trend line. One piece of evidence that has me thinking the latter is the stocks to bond ratio that I recently looked at. We could be nearing a breakout in that ratio and would support a move like this (linked below)
FRED:DGS10
by SMP99
Long Bond to SPY RatioAbove is a look at the 10 yr Bond prices relative to S&P 500. The purpose isn't to look for an exact top where prices or the ratio trend may reverse but instead to see where we've been in the past and where we are at currently. Breaks in the long term down trend of this ratio have lead to large moves in the SPY, however, determining those breaks in the trend are likely easier to do in hindsight. Its possible we are at or near breaking the current trend but again maybe the ratio continues to goes lower. In fact just recently the ratio made new lows during the month of November (lower than both 2000 and 2007). For now its worth watching the current trend that has developed from 2011. During the pull back in Oct, the ratio moved up to touch this trend and reversed lower after that touch.
AMEX:SPY
by SMP99
10