Archive for December, 2011

The U.S. Dollar Index Edges Higher With More Upside Likely

Posted in U.S. Dollar Index (DXY) on December 14th, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Despite efforts by European leaders to curb their sovereign debt crisis and save the euro the last week, an undercurrent of doubt helped the U.S. dollar index (DXY) edge higher. Skepticism that the European Commission will be successful in forcing member nations to follow strict budgetary guidelines will likely persist. This is due, in large part, to the prolonged Eurozone bickering that has jolted global markets from time-to-time over the past 18 months.

The perception that U.S assets offer a sense of stability has been supported by a stream of favorable economic news in recent months.  Moreover, expectations that the Eurozone is might already be in a recession has also bolstered the U.S. Dollar as well.

From a technical point-of-view, it is interesting to note that long term (monthly) oscillators are positioned bullishly on the U.S. Dollar Index (DXY). In addition, it appears that a break above key trend line resistance at the 79.90 level could lead to a possible extension up to the 87 area.

The problem with this scenario, however, it that if a more pronounced bullish move in the greenback were to occur, the upside prospects for both U.S. equity and commodity prices would likely be muted over the foreseeable future.

The Decline In 10-Year Treasury Yields Not Likely Over

Posted in 10-Year Treasury Note (TNX) on December 8th, 2011 by admin – Be the first to comment

By Jim Donnelly, Olson Global Markets

Despite last week’s coordinated effort by global central banks to provide liquidity to the European banking system, it does not appear that the decline in yields on the U.S. Treasury 10-year notes (TNX) is over. While this coordinated maneuver helped calm investor worries (that led to an equity buying spree as well as a selloff in U.S. Treasury note prices), the underlying problem that European banks face has not yet been addressed.

The possibility of a fiscal union in Europe could, if adopted, be a big step in the right direction to reduce borrowing costs. That being said, it would also likely force a recapitalization of most European banks, which could take some time to achieve.

In the meanwhile, future headline jitters could result in a return to a search for “safety” that could lead to a run back into U.S. Treasuries and, perhaps, gold.

Interestingly, Thursday’s surprise announcement which reduced the penalty rate paid to issueU.S.liquidity swap arrangements from 100bps to just 50bpt caused U.S.10-year treasury yields to jump from 1.951% at the beginning of the week to an intraday high of 2.156% on Friday before settling the week at 2.042%. It also led to an almost 914 point gain in the Dow Jones Industrial Average, before settling with a 787 net gain for the week.

In any event, long term charts of U.S. 10-year yields (TNX) suggests that a test of “channel bottom” support, currently sitting at 1.40%, has not yet occurred. And while long-term technical indicators are in an extreme condition, they have not yet changed direction, which suggests that the trend to lower yields may not yet be over.