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Higher US Bond Prices Will Support The US Dollar


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Nov 14 2011

The risk is off today with Euro reversing significantly lower from 1.3800, and almost erased all gains seen on Friday. As such possibility for stronger US dollar remains in play for this week, but in such case, S&P500 needs to weaken towards and below 1215, while 1292 resistance holds.

One of the main reasons why "for now" higher dollar possibility exists is a bond market, which still shows bullish technical set-up on the TLT chart below. In such case US yileds will weaken which will send the US stocks lower and dollar higher. What we also want to point out here, is that moves higher on stocks and majors, seen on Friday are not confirmed by a bond market! So, if all markets are not showing the same direction, then something is wrong here. Now the question is to which market we should trust!? Well, we know that troubles in the Euro zone are not anywhere near the end and that any rally is just temporary hope. Based on this, we suspect that stocks are overbought and that sooner or later they will turn lower, which agrees with forecast for higher bonds; TLT in our case.

On the chart below we have five waves up followed by a slow price action, called consolidation. Its a contra-trend move from where market should break to the upside, above 119.50 wave (1) peak.

TLT 1h chart:

TLT; iShares Barclays 20+ Year Treasury Bond Fund (the Fund) seeks investment results that correspond generally to the price and yield performance of the Barclays Capital U.S. 20+ Year Treasury Bond Index (the Index). The Index measures the performance of public obligations of the United States Treasury that have a remaining maturity of 20 or more years.

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