The FOMC release on Wednesday dominates the markets’ focus this week. Expectations for tapering were lowered by the market before the Jon Hilsenrath article for the WSJ on Thursday of last week. Treasuries have been flat since the end of May. The dollar has declined severely in that same period. As for stocks, I posted on Friday that the short-term situation for the SPX remains simple – a range between 1600 and 1650.
As I wrote last Wednesday, Treasuries are still above long-term support. On a short-term basis, it’s still a picture of lower lows and lower highs, but the steep downtrend from early May has been broken in TLT, shown on the 6 month chart:
117 is around the 10 day high in the TLT, and the important level to watch if the Treasury market shows any strength. Meanwhile, the low set las week was around 112.
The dollar, though, has been the big decliner. The dollar index has moved about 5% lower since its high in late May, and is at its lowest level since February:
The short-term downtrend in the dollar remains in tact despite some stabilization last week. Much of this weakness has been driven by strength in the Yen, Euro, and Pound, while other currencies (especially emerging market currencies) have actually declined vs. the dollar.
I am still a long-term bull on the dollar for the reasons I mentioned last month. The reduced rate differential between the dollar and other currencies is the pre-eminent factor likely to drive future dollar strength in my view. The short-term Fed tapering discussion is a small, fringe concern – though crucial for psychology – in the broader landscape.
So that’s the round-up. I keep harping on the big macro markets since market moves are becoming more and more index driven. That’s especially true this week, and could continue over the summer months as long as central banks remain in focus.