Saturday, June 9, 2012

Have U.S Treasury bonds, and the U.S. dollar, topped? Chart levels to watch

Two significant developments that occurred this past week were in the U.S. Treasury bonds, and the U.S. dollar. It is possible that both of these made significant highs and will correct from them. We'll look at each in turn. First, it's interesting that the yield on 10-year bonds hit a low at 1.44 (14.40 on the $TNX chart), because that happens to be a classic Fibonacci number!

Now, here are daily and monthly charts of the long bond, $USB (traded in futures markets as /ZB). We were on alert for a significant high around $150 because that would trigger a bearish "butterfly) Fibonacci pattern, and it also puts it at the top of a very long-term trendline. Sure, it could go higher theoretically, and if it got to $160 that would be another bearish butterfly level. But there are reasons to consider this may be "the top" unless something about the world economic situation really goes to pieces - who knows! Then again, if the financial situation fell apart, it's also quite possible that investors would not want US bonds either because there might be concerns about ability to repay in full ... so consider that ...! Meantime, for trading purposes, we are looking to $146 initially, and depending on what kind of bounce or more might occur from there, it could drop further to test $144 (another Fibonacci level), then 138, even 136.

While it's likely to bounce on the expected way down, the type of downtrend that may set in should create its own channel and we will look for how it reacts according to the markings I placed on these charts. (Notice I also drew a horizontal oval where there's an interesting gap that might get filled, further down and still above the most recent swing lows ... depending on if and when that gap is filled, it might even correspond to a new higher-low level for the big uptrending channel to test.

Eventually, the long-term uptrend channel is likely to give way, but that seems unlikely to happen this year.

Next are daily and monthly charts of the US dollar. You'll notice that among my markings are a .618 Fibonacci retrace on the monthly chart, which contained its rally and sent it back down again this past week. I consider this retrace level to be very significant, because it could send the dollar index back down around 61 - yes, significantly lower lows ... No guarantee of course, but don't discount the possibility. I base the potential projection to 61 partly on Fibonacci extension analysis, and partly on my understanding of the possible Elliott Wave context that may have the dollar consolidating before another wave down. Yes, so far it's just a consolidation - and could break higher OR lower. Maybe policymakers will have a hand in that. We'll just keep an eye on the charts. Since the level just tested is so close by, it's reasonable to look for it to descend further - and only if it breaks above that level, to change positions accordingly.

Investors and traders need to keep an eye on the dollar and use the levels marked on my charts as places to watch for support levels that are likely to be tested. If these support levels give way after being tested, then it's a matter of considering whether it indeed will weaken that far down. Again, it doesn't seem likely to happen this year, but we do need to observe how it moves from here - especially if it does move down quickly.

No comments:

Post a Comment