USD Tanks, Bonds Drop as Expected, Market Rotates for Rising Yields

First off, part of my plan is and has been a stronger dollar to come (I finally shorted the Euro today to put my money where my mouth is on this play) and that is obviously not something that has proven to be correct yet. I’ve got time, if not a lot more support. We’ve been noting that Uncle Buck’s key downside target and support has been the mid-90s, and well…

us dollar index

US dollar index is getting oversold on the daily. Now or never, Unc!

Here is the weekly chart of USD/EUR showing no more downside before USD breaks down vs. the Euro. Cue a change of Blue Öyster Cult’s lyric “it will be time” to “it is time”.*

usd eur

* I was listening to a live B.O.C. album today via the nicely improving Amazon Music app on my phone and it included a huge selection of the old stuff from the 1st album, Tyranny and Mutation and Secret Treaties. Awesome music (I sense a video coming to close this post). The above-noted lyric was bouncing around in my head.

Along with some shorts and various longs, I am focused on stocks in the Industrial/Materials area and as we’ve been noting for weeks now in NFTRH, the Financials (by far the largest long position is cash, due in part to said bullish USD view). We’ve been following XLF along with its largest components as a constructive play for a rising L/T yield situation. I chose to buy GS a couple days ago. But XLF, the bank ETFs and individual banks would all be plays if the rising yield play comes back on and the economy does not fall apart. Here again is my little helper, the Citi yield relationship graph…

yields vs. stock sectors

As of now all the 10yr yield has done is bounce hard to a degree that halted the last bounce in May. But TLT did come within a hair of our 129 target, and 30yr bond CoT and sentiment has (as of last week) joined the 10yr in contrarian bearish territory this time. So, maybe it’s more than just a bounce in yields this time. We’ll know shortly.

tnx

I don’t think yields are bouncing due to some kind of economic strength story. They are bouncing at least in part because the dollar is tanking and that is the adjustment that yields make; they would theoretically help support the currency.

Okay, I am going to wimp out and post B.O.C.’s grandest song instead of something from the closet (which is the stuff dear to my heart) because Buck Dharma is a true guitar hero and he’s on full display here. So the guitar’s got no head stock on it and the SG is long gone, but anyway… When I was a kid I had a man crush on this guy.

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