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The Euro Jumps Aboard the Bull's Train, but the Aussie Dollar Is Being a Wet Blanket


The euro-US dollar cross was finally able to conquer its short-term resistance over the last few days. But that's not the end of the story.


The franc / krona indicator is still working to break out above a downtrend line of its own.

My "proprietary" indicator using the spread ratio of the EURCHF versus the EURSEK – which basically shows the relative strength or weakness of the Swiss franc versus the Swedish krona – is still indicating relative demand for the Swiss franc – not a great sign for risk assets. I will note, however, that the ratio is right at the downtrend line resistance once again. Maybe this time will bring a change in trend.

For those that don't know, the Swiss franc is (along with the US dollar and Japanese yen) a well-known "safe harbor" currency. With the US and Japan seemingly in a death race to see who can hit rock bottom with their currency first (only partially joking there), the Swiss franc pretty much stands alone as the world's safe harbor currency (for now). When the spread ratio (top graph on the chart below) is falling, it indicates franc strength (theoretically a bearish leading indicator for stocks). When the spread ratio is rising or is in an uptrend, it indicates relative weakness in the franc (theoretically a bullish leading indicator for stocks).

So, this is yet another currency chart to be watching as we head into the weekend and the end of the month and year. A breakout above the downtrend line will at least turn the chart from bearish to neutral for risk assets. Once that occurs, we can then look for a series of higher lows in the ratio to develop (which would turn the chart bullish for risk assets).

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Conclusions from currency land:

If we can get the upside breakouts to occur or hold into the weekend for the euro and Aussie currency crosses, it would likely add more fuel to the fire for risk bulls. If we don't get these breakouts to occur or hold, however, all of the recent upside in stocks and other risk assets may have just been luring bullish investors in prior to a big fall in prices. I cannot urge readers enough to pay close attention to the action in currencies in addition to stock prices. The currencies tend to be the truth tellers for the intermediate to long-term prospects for risk assets – not stocks.


The yield on the 10-Year US Treasury Note is breaking out above short-term resistance!

For months now, I've been pointing to the potential for rates to rise up to at least 2% on the 10-year Treasury even if this move is just an upside correction. For weeks and months, I was frustrated by the inability for the TNX to get any traction to the upside. Finally, however, we are finally seeing some serious movement to the upside in rates – enough so that resistance levels are starting to fall by the wayside.

Over the last two sessions in particular, the 10-year yield has muscled its way through the short-term downtrend line as well as short-term "correction resistance" (see green Fibonacci lines) at 1.808%. At this point, I would expect to see a bit of a pause or consolidation before even more upside takes place. More upside for rates in the short to intermediate-term would almost certainly be accompanied by higher prices in risk assets.

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No positions in stocks mentioned.

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