Long-term Trendline Props Bonds, Slows Dollar Rally
Trendlines are, in my 30 years of experience, the most important structure – support or resistance — on the chart. Not only do they identify price patterns, and help identify significant shifts in leading indicator markets – such as interest rates — but they also sometimes provide that point in price and time that a market stops, and reverses on. The bull trendline in this weekly Treasury bond chart below did just that last week. In doing so it also shifted the short-term trend on the daily chart higher, which ended up putting the brakes on the current U.S. dollar rally. Stronger bonds = lower U.S. interest rates –> weaker Greenback.
Such a development, so close to the mid-month asset class flows, could help a carry trade market like AUDUSD find the support to once again close above the psychologically important 1.00 level. I’m a big believer that price patterns are a reflection of underlying economic developments; therefore traders don’t need to ponder the “why” of price movement so much. Yet there is nothing wrong with having an understanding of which markets are leading indicators and the affects they can have on other derivatives, particularly if this lends the trader confidence.
Jay Norris is the host of Live Market Exercise, at Clovernest Financial Group, and the author of Mastering The Currency Market, McGraw-Hill, 2009.
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. Risks include the potential that changing political/economic conditions may substantially affect the price/liquidity of a currency. Investors may lose all or more than their original investments.