Euro & Yen Weakness Going Forward
With money piling up on the sidelines because of global stock market gains in 2009 and a record amount of longer-term U.S. Treasuries maturing in 2010, it would seem unlikley that U.S. interest-rates would rise much beyond the ‘08 highs, if that. Given that T-Notes pulled up short of their 2009 lows – see chart below – it seems to me the lower volatility we’ve been seeing in the government debt markets may be around for awhile longer. (There is an invesrse relationship between note prices and interest rates.) This cascade of cash coming from those maturing treasuries is supportive of bond and blue chip stocks because if it’s been locked in long-term treasuries up till now, they were conservative funds to start. This also means the liklihood is greater, in my opinion, that a goodly portion will be rolled right back into treasuries rather than some of the other current choices.
This points to a continuation of the trends already on the table as the fourth quarter of ‘09 ended and the 1st quarter of ‘10 started. What was most clear as we moved from 2009 into 2010 was weakness in both the euro and the yen; a trend which, coupled with a continued weak Greenback could spell boring currency markets. The trading term for weak, sidways markets is “mean reversion” and a great example of this would be eurjpy over the last 8 months — see chart below.
While the greenback will likely continue to be weak for the same reasons it was in ‘09, it may catch some up waves for no other reason than the euro and yen are less desirable. And there will always be dollar conversions neccesary to gain access to U.S. multi-national blue-chips, and those before mentioned Treasuries, which always prove so palpable in uncertian times.
Jay Norris
www.trading-u.com
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