Tuesday, September 25, 2007

Tuesday Interest Rates & the US Dollar

Disclaimer: All charts and comments are intended for education and discussion purposes only. No investment recommendations are being offered. Please do your own research and take responsibility for all investment decisions that you make. Questions and comments related to this post are encouraged.  | MON - Sector Strength | TUE - Interest Rates | WED - Market Breadth | THU - Commodities & Currencies | FRI - Market Sentiment | SAT - Bullish Percents | About | contact: HeadlineCharts@gmail.com |

Rates on the shorter durations have dropped quite a bit since June.  The US Dollar has plummetted and the Fed lowered rates, yet the 10 and 30-year rates are still below the 40-week moving average.  Bond investors couldn't be too worried about inflation with long duration rates at these levels.  Perhaps that will change in the coming weeks, particularly if the Fed chooses to continue lowering Fed Funds.  I thought these rates would be higher by now, but let's hope they stay just about where they are in order to help the mortgage market.  Also, at these levels, rates are favorable towards equities.

The US Dollar is right at long-term support dating to 1992.  The RSI is dipping into oversold meaning that the US Dollar could start to bounce higher soon.  But when the RSI dips into oversold, it generally means there will be another test of lows following the bounce. 

Some people think the US Dollar has nothing to do with the stock market.  Other people think with the US Dollar so low, US stocks become an irresistable bargain for foreigners.  I'm more of a believer in the conventional wisdom and think that as long as the US Dollar is weak, foreign money is not going to flow into US stocks because overseas investors will ultimately lose when they cash out and exchange back to their own currency. 

Posted by HeadlineCharts at 20:02:14 | Permanent Link | Comments (2) |
Comments
1 - High bonds prices (low yields) is actually a sign of inflation.
Just like this stock rally is a reflation rally ("stuff" has to be worth more and more each day that passes while more money is poured into the system), so happens with bonds: the Fed can flood the system with money but they cant control where it goes. (Comment this)

Written by: enrico at 2007/09/26 - 01:46:07
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2 - Hi, thanks for the comment. I'm thinking that the yields on the 10-year and 30-year are below the 40-week moving average, which points more to slow growth and low inflation... or maybe flight to safety. Of course, it can change in the weeks ahead, but if the bond market were really concerned about inflation, then I think 30-year bonds would be selling off pushing up rates significantly above the 40-week moving average. (Comment this)

Written by: HeadlineCharts at 2007/09/26 - 20:04:36
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