Autochartist - Weekly Commodities Update: Treasury Bonds

Traders have been enjoying big swings in the treasury bond market since the Federal Reserve's announcement of a new quantitative easing policy was announced just after the US elections. The mood in the treasury complex since has been mostly bearish, and the resulting rise quick run-up in interest rates may have far reaching implications for the broader commodities, as well as Forex markets.

As the T-bonds sell off, the euro currency has moved down against the US dollar in near lock-step, and the Japanese yen along with most other major currency pairs have weakened in the process. The momentum in higher yields and a stronger dollar has at least temporarily knocked the wind from the sails of the precious metals. Last week's routing of major gains in the agricultural commodities is also reflected in the sentiment that much higher interest rates, and therefore slower growth, may be on the horizon.

The stronger dollar comes amidst speculation that the bond market is anticipating the ongoing \"loose money policy\" invoked by the Fed. This is going to continue encouraging inflation. In turn, this is driving investors out of the bond market in search of higher yielding investments, and the eventual higher rates caused by a falling bond market will likely spur demand for dollar-denominated investments, perversely spawning a Dollar rally in the face of inflation fears.

The Autochartist platform has delineated a very orderly Channel Down chart pattern on the intermediate term 60-minute scale, with a duration totaling 186 bars. This channel has contained all of the downward price action since the Fed decision was announced, and registers a 10-bar reading on the Initial Trend indicator, inviting the possibility that his may be a defining market reversal and longer term trend shift in the bonds.

The market kicked off the trading week with a continuation of the sell-off, and accelerating momentum has initiated a failure of the lower support band of the Channel Down chart pattern. This triggered a Breakout signal with a strong 10-bar reading, indicating the high momentum behind the move. The Breakout projects an initial price target near 124 ½ if the market continues dropping, with the lower end of the forecast coming in near 123. This would measure a nearly 10 point drop in bond prices for the month of November, reflected in sharply higher yields on treasuries.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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