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Risk Currencies Are 'ThisClose' to Bond's Bullishness

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Forex is still working hard to join the unabashedly bullish bond cabal and to force risk bears to run for cover.

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The AUDJPY pausing after a nice run – maybe a bit more upside until major resistance is hit.

Just to get away from the US dollar based crosses for a moment – the Aussie dollar / Japanese Yen cross (AUDJPY) has been on a short-term bullish run since early October. This cross is used by many analysts as a good gauge of the global appetite for risk. Notice the especially shallow pullback in early to mid-November which is when the equity markets were going through their recent pullback. This relative strength acted as a bullish tell – if you were paying attention at the time.

Since the most recent bottom, the AUDJPY rallied powerfully until the end of November. It has been basically consolidating since then – leading to what I believe will be one more little (relative to the recent move higher) rally to the upside. The minimum upside target for the coming move will be 87.159 – the 100% Fibonacci price projection line for wave "c & ii". If the wave "c & ii" resistance is broken on the upside, the door will swing open for even more upside action.


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So, the message from currencies right now is that we've had a nice run in the "risk" currencies, but now they're at some pretty major resistance levels. Another thrust to the upside in the euro and the Aussie Dollar could do the trick for the bulls. Until that occurs, though, we have to be on the alert for signs of a downside reversal and a resumption of bearish trends in the risk currencies.

BONDS

The yield on the 10-year US Treasury is slipping towards key support again – despite equity prices rising.

The equity markets have been on the rise, economic numbers (especially in the housing arena) have been benign if not bullish here in the US and there are some more hopeful signs coming from economically important countries like China. So, why are Treasury yields falling – and nearing critical support? Are Treasuries warning us of something ominous on the horizon? Or are Benny and the Jets at the Fed simply trying to pour gasoline on the fire? I'm not sure of the answer to that question yet. But, I do know that any close below 1.547% will cause those short of bonds to cover their bets quickly.


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That's it for bonds today – I'm intentionally keeping the bonds section short today due to the Japan-related material in the currencies section. The message from Treasuries is still somewhat unclear to me – only because of the outside intervention by the Feds. If they weren't involved and yields were acting as they are, I would be much more concerned about something scary lurking around the corner. As things are, though, while I am cognizant of the possibility of bad news coming, I am taking the messages from the Treasury markets with a grain of salt until further notice.

OVERALL

With Treasury yields falling and the EURUSD and AUDUSD still having to conquer key resistance levels, I have to maintain a certain level of skepticism towards risk assets. I'm happy to be long of special / specific situations like Mexican equities or even Japanese equities (pending the breakout being occurring and being confirmed). However, wholesale, across-the-board buying of global equities is not something I'm engaged in right now.

Twitter: @tttechnalytics

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