The FX market has been focusing A LOT lately on hawkish comments from the ECB and changes in interest rate differentials in favor of the Euro, so if bonds fall this week and yields go up, the FX market will get the interest rate reaction it needed to support the dollar again. Everything seems to be timed, as always. Markets are ONE big machine.
totally agree! I see bonds in a bear market, and the dollar in a bull market. The dollar is getting oversold enough intermediate term to create a bottom. Any close under 87 will probably be sufficient.
I keep trying to get short the long bond structurally. It goes a bit my way, then comes right back to where I sold it. I'm not losing any money on the play, just time value/opportunity cost. Kinda annoying. Sorry, but I think we do a lot of nothing for a while until the long end of the yield curve does anything. I continue to closely watch this, however. The stronger the USD gets, the better. Fantastic for buying foreign assets! Gimme, gimme, gimme....
On Bonds, maybe you need to catch the low of this rising trendline? The Dollar, still looking for under 87 for a buy.
Be careful with assumptions....Ben Bernacke aka "Helicopter Ben" (The Fed is dropping greenbacks into the USA via helicopter) may prove to be a SUPER inflation hawk...just like Greenspan was in 1986. Hello...anyone home...1986 was one year before....remember 1987 ? History tends to repeat itself.
I remember 1987. The dollar had been going down and down and concerted Central bank efforts were then only having minor or temporary effects on currency fluctuations. Because the Fed was getting additional pressure from the FX market to increase interest rates, financial markets focused increasingly on trade data. So when the current-account balance deteriorated to a point where markets felt that monetary policy was going to be dictated by the need to save the greenback from collapsing, the outlook for interest rates suddenly pointed to conditions that would be too difficult for the economy to digest. I also remember a show in August 1987 where two economists were invited to talk about the direction of the economy after a few years of strong growth, and thinking that I had absolutely no idea about that myself. One of them answered by putting a bowl of spaghettis on the table and explained that the confusion in that bowl was exactly what was in people's mind in regards to growth prospects. I always remembered that bowl of spaghetti and it has always been the best representation of my state of confusion when trends are about to reverse (up or down).
Hey Steve, nice analogy. Did someone say inflation? Crude in a bull market, Gold in a bull market, Bonds in a bear market...sounds like inflationary expectations to me.
It looks like we have a new market consensus. In the next few weeks, news and events will be evaluated with the sentiment that the economy is stronger than previously thought. Oil prices seem to be stabilizing -- correcting from an emotional jump(Iran) but with limited downside because of economic growth.
And as you know, market consensus is a lagging indicator. The economy is still the same, chugging along irregardless of the increases in oil prices. But there comes a point when the impact will be felt. Maybe by year end!
Actually you're right, market consensus builds up gradually so it is somehow lagging. The key is to see it change direction and how it evolves before it takes it's final form, which is what you and I were actually doing in this thread. We only have slightly diverging views on oil (as always we never agree on that particular commodity). The consensus before was that the economy has slowed down, that the Fed recognized it and was going to cut us some slack. To know the current market consensus is still an edge because it is the filter or bias through which information is processed.