Bonds Point to Higher Rates in States
Thirty-year U.S. Treasury Bond futures posted a double top over the last two months, which points to an increase in long-term interest rates. Bonds and interest-rates have an inverse relationship where higher bond prices equate to lower interest rates and lower bond prices equate to an uptick in interest rates. Because of that dynamic treasuries also have an inverse relationship to the U.S. Dollar. There are exceptions to that rule that lower rates always equal a weaker currency, as we saw last year when a global stock market route led to a stampede of funds into U.S. Treasuries — creating lower long-term U.S. interest rates — and prompting a powerful dollar rally.
We first pointed out a potential turn around in treasuries, and the implications for the Greenback in October when the U.S. Dollar Index was still probing toward 75.00. Now that the Dollar Index could not post a weekly close below 75.00 and gave us a reversal candle on the Weekly chart this week, with the bond market also posting a reversal candle to close below the previous weeks low, it looks like the nine month dollar slide could be coming to an end for now.
If a dollar turn around is in the cards, most professional traders will welcome a respite from the one way trade we’ve seen over much of the last year in favor of two way trade.
Jay Norris
www.trading-u.com
DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency.