Diary of a Financier

Macro asset update: The 10-year & the Dollar

In Capital Markets on Fri 4 Jan 2013 at 17:10

To continue the 2013 New Year outlooks I presented earlier this week, I had to quickly mention developments in macro asset classes like the 10y US Treasury yield (TNX) and the US Dollar (USD).

I’ll start with the 10-year. TNX closed this week at 1.915%, on the doorstep of that 2% psychological level. From here, TNX has a clear path up to its next resistance at 2.40%, which also happens to be pushing the 50% retracement I’d expect in a breakout from its preceding, classical falling wedge. Bullish weekly indicators also concur:

TNX (daily)

TNX (daily)

Since TNX is overbought on its daily fractal, I have to note the possibility of failure in the near term. Were TNX to break under 1.85, it will gap down through the airpocket to ~1.75.

Much like Gold & Silver (much unlike stocks), USD is focusing on a longer time horizon. It’s looking beyond the better-than-expected fiscal cliff tax resolution, ahead to the spending cut debates. The US Dollar Index’s (DXY) recent rally was further aided by yesterday’s release of the FOMC December Minutes, which showed dissention by a number of Fed hawks who’re clamoring for a 2013 end to Quantiative Easing (QE). This fresh DXY breakout affirms the self-similar 1996 analogue I’ve been trumpeting for almost 3 years now:

DXY 1996 v 2012 analogue (weekly)

DXY 1996 v 2012 analogue (weekly)

A zoom into the daily chart shows our bounce off the false H&S neckline. From here, I expect another +1.7% rally up to DXY 81.50-82.00, where we should get a pause that’ll be succeeded by a breakout higher–just as the analogue recommends.

I like when I get agreement across asset classes. TNX and DXY are operating off similar time horizons, and their technicals concur about the fate of future US macro.

–Romeo

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  1. […] also an island hovering above a support level ~1.85, below which lies an airpocket down to 1.75. I still consider 2.40 to be an attainable target in the longer term, but a hiccup down to 1.75 is becoming more […]

  2. […] rates, which will likely ascend into positive territory this year (given my 2.40% intermediate target on the 10y).  In a regular Congressional testimony, Ben Bernanke spoke today about the Fed’s […]

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