Tuesday Interest Rates & the US Dollar
All charts and comments intended for education and discussion purposes only. No investment recommendations are being offered. Comments below related to this post are encouraged. | MON - Sector Strength | TUE - Interest Rates | WED - Market Sentiment | THU - Commodities & Currencies | FRI - Market Breadth | SAT - Bullish Percents | About |
Long-term rates started working against rate-sensitive stocks in late 2005, and, as a result, they consolidated for 10-months. A nice break out occurred in July of 2006 along with a peak and strong decline in rates at the same time. Then long-term rates appeared to bottom again in December and the rate-sensitive stocks started to falter a bit. It isn't clear to me where long-term rates are going from here, but when the direction of rates is clear it should help indicate whether to be in or out of the rate-sensitive stocks.
The yield curve is starting to extend higher again. I'm not sure to what extent the yield curve hurts or helps the economy based on dismissive comments by the ECRI. I would think though that if it extends above the former peak in December, there will be a lot of nervousness and discussion about it.
The US Dollar had a bad week corresponding with news that the Q4 GDP may be revised downward by a large percentage. This would lesson upward presssure on short-term rates which has the effect of pushing down the US Dollar. This news came out at the same time as news that European and Japanese rates may be rising which puts additional downward pressure on the dollar. The USD index failed just below the former up trend line and the 40-week moving average.
The P&F chart of 10-year Treasury Note prices shows that since a low in January prices have moved a bit higher, but so far prices are retracing to the red down trend line. We'll have to assume that prices are headed lower, and rates higher, until this down trend line is broken.
