From the interest rate team at PFG Best:
What a week! I’m going to keep this one short, so look for a more detailed report early next week. My view points haven’t changed from last week: The USD is a main driver of the markets and a potential US interest rate change is in the lime light. So, keep your ear to the ground on verbiage related to the FOMC. It’ll be interesting to see if the articles from this week about the USD will have any affect on the message the FOMC is communicating. These articles exemplified the world’s focus on what the US Government is planning to do to support the USD, if anything at all. Governments are ready for action, not just words, but I still don’t believe the FOMC will raise interest rates this quarter.
Continue to look for weakness in bonds, especially into this coming week of heavy auctions and what seem like could be continued better-than-expected corporate earnings. Although we should see continued mixed data, I believe investors will focus on inflationary pressures from improving business conditions. Look for 10 year T-note cash yields to continue their approach towards resistance at 3.60%, while staying in a range of 3.30-3.60%. If data is amazingly positive, look for a potential move up to 3.70%, especially if the FOMC releases any new language regarding a change in their focus. Look for a move down to 3.28-3.30% if earnings and economic data disappoint. Look for 10 year T-note futures to trade range bound between 116 1/4 and 118 1/2. If earnings and economic data are quite strong, especially if coupled with any new FOMC language about a change in their focus, I would not doubt a move down towards 115 ½. Likewise, if data points to a negative outlook, look for futures to test the 118 ½ resistance level. Look to buy near support levels and sell near resistance levels.
Additionally, don’t be surprised with a small bounce in the USD Index early in the week, with strong resistance just below the $76 level, given short covering/conjecture about USD policy. This move up could spook the stock markets again, just as it did today.
Mark Melin & Eaven Horter
PFGBEST Research Team