Global interest rate markets have been in a five-day bull run that has seen the 10-year Treasury note drop in value from 121.80 to 118.20. As the benchmark note drops in value the automatic response is for interest rates to increase, which is something the Federal Reserve will not want to see continue for too long. The cost of servicing freshly generated debt has to be weighed against the benefits of their quantitative easing program, which is floating equity markets higher on low-volume daily ramps.
Asian equity markets found buyers to push the Nikkei above 10600, but now look to have run out of upside energy and momentum. European trade held the German DAX close to resistance at 7300, after a one-session response to the Non-farm Payroll numbers that produced most of the weekly movement in German DAX trade. Now is the time to be looking for a test of support at 7250, and at that point reviewing a new signal either long or short, rather than be looking to buy an already extended market.S&P 500 trade broke long from 1305, and hit the upside target of 1315 in trade on Monday. US equity futures consolidated in overnight trade, and a new signal will not be issued until a test of support at 1305 is seen. Buying a long break-out from 1320 without seeing a test of support will be extremely dangerous. The daily ramp higher in equity trade continues on extremely low volume, with the New York Stock Exchange printing 40% less participation levels in trade on Monday than the 10 day average. It is quite obvious that stocks can go higher on low-volume, but watch out below when a high-volume test of support fails to hold.
Commodity Market Divergence
Global commodity markets continue to see divergence between hard and soft assets, with oil dropping lower, gold and silver consolidating recent moves higher, and soft commodities including wheat, corn, and cotton absorbing limit-up market conditions. The moves to be long most commodity sectors are not in response to global growth figures, but more in-line with hedging the manipulation being seen in US equity and dollar markets. Finding fair value on a daily basis has created volatile global commodity charts, with sporadic price action as the norm.
Gold has signaled a new buy at 1350, with an upside target of 1360. Silver is consolidating the recent test of 29.50, and a break above that price point will draw in a test of 30.00. West Texas intermediate oil trade signaled short on the 4th February from 90.20 and hit the 88.20 target on Monday. WTI is now sitting at the 100-day simple moving average at 85.75. No signals will be issued until a break and sustainable hold either side of that area is seen.
In all, this is a heavy period of consolidation, with wide divergence between commodity markets.
Currency Crawl As Dollar Hits Inflection Point
Currency markets continue their February crawl with most major pairs, and by default the dollar index, tracking regional equity movement that now revalues risk every eight hours, compared to the weekly alignment of fair value that has been the historical norm.
The euro found buyers against the greenback that the 1.3500 area, which houses the 100-day simple moving average. Upside targets on euro include 1.3750, which will be a reversal point for likely test of support. Signals will follow as that move unfolds. The great British pound has been in heavy consolidation, holding around the 1.6000 price point. Movement by the pound against the dollar has been violent on an intra-day basis, yet is still unable to break previous session ranges by the close of each day's business.
The Australian dollar found buyers after last week's interest rate statement from the Reserve Bank of Australia, and has held easily above parity against the US dollar. Six sessions of sideways movement have now contained the upside momentum, and it really is a coin-flick as to which way the markets take aussie valuations. The Canadian dollar has been moving sideways against the buck for six weeks now, with no sign that support or resistance will be broken in the near-term.
The Swiss franc and Japanese yen are both tracking the 10-year US Treasury yields, with both currencies at the beck and call of market momentum on any given day. Both are becoming very reactive to changes in the benchmark 10-year note valuations. Although the US dollar looks weak, the dollar index is sitting at triple bottom support around 77.50 which has led to upside tests of 82.00 over the last four months of resistance.
There is nothing to suggest another move higher in the dollar will not be seen if the sideways crawl cannot break support. The path of least resistance may be a move up to 82.00 on the index, which equates to 500 pips of potential movement on each.
In general, there are only sporadic bursts of price action energy in the currency markets, which are in-line with global equities holding yearly highs on incredibly low volume levels.