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This week has seen a complete turnaround for some of the fundamentals that I follow here on the blog, and with my trading.... and it's only Monday!

The first is the push the dollar has seen over the past few days. Money has been flowing in at high clips pushing the euro, yen, and Canadian to breaking points on charts, and threatening a few other currencies as well. Where's the money flowing?

Here's the bond chart to give you an idea (click to enlarge):

This is the 10-year note (showing price). Although the yield may be different with different timeframes, most other notes and bonds have followed this similar pattern. Money is quickly moving into our debt markets. These are "safe-haven" markets in times of crisis. You could argue that we're sitting about there right now with what is going on in the Middle East.

Here's the same chart, but showing the yield:

Ahhh.. yield. It's what the bond rates are all about. But, hasn't the Federal Reserve done a great deal of work to get the yield higher, only to see flows moving into notes and bonds, pushing up price (pushing down yields with the inverted relationship)?

There are two elements that are at work here. First is the softening tone in the Federal Reserve's latest statement after their meeting. The Federal Reserve basically told traders that they could take profits comfortably, that the "measured" move was likely to be close to ending and the free ride was just about over. Traders sold off their positions. We're also seeing the move of safe-haven flows pushing up prices as well, driving down rates. The combined should continue to pressure bond yields the next couple of weeks.

I am not so sure that the Federal Reserve is 100% finished with their tightening schedule. The bigger culprit still lies ahead: The price of gasoline. Gasoline has eased off today because of Israel's attempts to end the conflict. Regardless, gasoline has moved much higher over the past few days:

Take a look at the chart and look at the dates. There are some interesting price movements we're seeing. The average price for the month of June for gasoline is $2.10. We're going to be getting some inflation data this week that will be showing the affects of the price levels during this timeframe. The price of gasoline for the same period last year was averaging about $1.60. That's 30% higher. The m/m increase will look contained. It's the y/y increase that is going to look ugly. Next month, the move will likely increase even more as we're faced with even higher prices than what we saw last month.

In short.... as long as energy prices continue to rise, so will interest rates. Inflation targeters have a mantra... "growth be damned. It's all about containing costs."

With this, the bond traders are likely to look at their exit as being a bit early. The Fed will want to get a handle on the recent movements in the bond markets as well as energy movements.

Source: Why The Fed May Not Be Done Raising