Archive for April, 2011

10-Year Treasury Note Yields Still Pressing Higher

Posted in 10-Year Treasury Note (TNX) on April 11th, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Although the “debt ceiling” crisis has been averted, which over the short-run will likely cool off the recent surge in energy and precious metals prices and possibly buoy the dollar, long-term debt issues remain a problem. Some of these concerns are reflected in the yield of U.S. 10-year Treasury notes.

On longer-term charts, 10-year yields (TNX) are again approaching key trend line resistance now sitting at the 3.88% level, with most technical oscillators on that time frame consistent with the expectation for higher rates. A move up to that area could reflect an improvement in real underlying growth (GDP); or it could reflect further weakness in the dollar and the threat of rising inflation.

Either way, this week’s sigh of relief may be temporary with the Congress about to address the budget deficit, a much bigger issue, later this month. That, in turn, could result in a much bigger and divisive fight.

As this week’s trading session begins, a decline in 10-years yields over the near-term should ensue resulting from the just reached “debt ceiling” compromise. Upward momentum in 10-year yields, however, will likely force an eventual test of the 3.88% area over the intermediate-term. If that level gives way to interest rate pressures, an addition march up to the 4.38% area, where a key “channel” boundary currently sits, could follow.

For now, it may be time to reassess the extremes just reached in commodity prices and the dollar index last week.

U.S. Dollar Index Breaks Below Key Trend Line Support

Posted in U.S. Dollar Index (DXY) on April 4th, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

With implied volatility levels on equities pulling back abruptly last week, the U.S. Dollar index broke below an upwardly sloping trend line that had been in place since the 70.698 low established three years ago on March 17, 2008. Although a number of technical indicators on long-term charts are nearing oversold conditions, they have not yet really done so. That opens the door for a possible move down to long-term trend line support currently located near the 69.20 area.

If it does, U.S. produced goods and services in theory should enjoy a competitive advantage over non-domestically produced rivals. In turn, that should brighten the employment picture in the U.S. going forward. The problem, of course, is that higher prices at the pump, in grocery stores and in millenary outlets will likely accompany a weaker dollar which could frighten consumers from spending due to “sticker shock”.

A corresponding rise in mid-to-longer dated interest rates would also, to some degree, be expected to unfold. That would be troubling for the housing industry that has been and continues to struggle badly.

While the Fed’s intentions  may originally have been to keep businesses afloat with zero percent interest rates …with the added hope of reflating housing prices, sales and prices of residential housing have yet to provide much good news.

These issues collectively present a conundrum that could force the Fed’s hands to raise short-term interest rates sometime later this year, or early next. For now, however, additional greenback weakness should be good news for commodity prices, the employment numbers, equity prices in general, as well as riskier investments.