Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Currencies and Bonds Are Now in Unison: 'Risk Off' for the Short-Term


There was some smoke the last time I shared my thoughts on the interest rate and fixed income markets several weeks ago. Now, there's actually some fire!


The US dollar broke above short-term support and seems to have more room to the upside.

The US dollar futures (@DX) managed to break above the 100% Fibonacci price projection line or "correction resistance" on Friday and are confirming that breakout today (so far). All that breakout means is that DX has more room to the upside in the short-term. It does not indicate a new bull market in the greenback (yet). Based on the daily chart of DX below, it appears that the next key resistance area will be at 80.995 (from 80.455 currently). Any break and close above that level will signify to me that the greenback has more work to do on the upside. Whether that would be part of a new macro trend higher is still in doubt, however. For now, the message from the greenback is "risk off."

Click to enlarge

The yen remains under pressure from the Bank of Japan, but is very oversold in the short-term.

The Japanese yen futures (@JY) are still mired in their "self-imposed" bear market. However, they did hit one possible third wave (wave iii) target recently and should – under normal circumstances – be poised for at least a wave iv consolidation. Such a consolidation would have a likely upside ceiling of 1.1189 to 1.1533. However, these are not "normal circumstances." Rarely do we get to see a government so obvious in their intent and actively involved in pressing down their own currency – especially after a substantial (at least in the short-term) drop. But the BOJ has made it clear that it wants the yen even lower – low enough to take the Japanese economy back up to "respectable" levels (along with their stock market).

So, it is difficult for me to read the action in the yen as a true "risk off " signal – which is what such yen weakness would normally be telling me. Rather, let's see it for what it is – a short-term tailwind for Japanese equities (especially the ADRs of Japanese companies listed here in the US). Past that, while I acknowledge this as a win for the risk bulls, I am refraining from reading too much into the yen's recent trading activity.

Click to enlarge

The Swiss franc is also not as clear in its macro message.

The Swiss franc futures (@SF) appear to have more upside ahead of them (which would be good for the "risk off" crowd). However, in the very short-term, the franc is correcting lower. It should have a floor of about 1.07, though, and still has an intermediate-term upside target of 1.1321. Right now, I'm giving this chart a "neutral" reading on the "risk-on / risk-off" meter.

Click to enlarge

Overall, as I noted in today's opening, the scales are tipped slightly in the favor of the "risk-off" crowd for the short-term. Here's a summary:

Twitter: @seachangereport

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos