One thing is for sure: Markets and intermarket relationships have been in a frequent, if not constant, state of flux. It has become ever more challenging to read the tea leaves regarding these relationships.
A look at the charts this week reveals several things that should happen. The question is whether they will or not.
Treasury yields pulled back post-Bernanke but appear to still have upside left.
[More from Minyanville.com: The Yen Appears to Be Driving Things Right Now, Along With the Rise in Rates ]
The yield on the 10-year Treasury Note fell noticeably after Ben Bernanke's speech last Wednesday afternoon. The drop thus far does not appear to be anything more than a modest correction leading up to yet another upside move. The resistance range for TNX is 2.776% to 2.896% from Friday's close of 2.601%.
The short-term question is whether rates will go lower before they go higher. This morning's weak retail sales data gave us that answer in that they pushed rates lower. Very short-term support comes in at 2.52%. However, any break and close below that level will likely lead to a test of the 2.1% - 2.3% range.
Meanwhile, in other parts of the bond market, US high-yield bonds bounced a bit last week. But both US high-yield bonds and emerging markets bonds remain in weak technical posture.
[More from Minyanville.com: US Monetary Policy at a Crossroads: Ben Bernanke Has a Decision to Make ]
Overall for bonds, there has been no change from last week. The play until rates complete their wave 5 upside move (weeks or months from now?) is to either be short of bonds or sitting in cash – unless you believe the Fed still has this animal by the reins.
The euro bounced right up to resistance; there is more to prove before chart turns bullish.
The euro futures contracts must close above 1.3108 in order to open up the potential for a bit more upside. My call for a move down to 1.25 and then 1.19 remains intact for now.
US dollar rejected at resistance temporarily.
The greenback futures (shown below) stalled out at the wave "b" resistance just as I noted it might last week. The question is how much downside we will see in the short term. My initial call was for a pullback to the June lows at 80.710. If that happens, odds are that the euro will break the short-term resistance noted above and test the next levels up – while maintaining a bearish overall posture. Before rates, move that low in the short term, initial pivot support at 82.445 will be tested.
The Japanese yen didn't quite hit downside target – yet.
The yen futures (shown below) still have not quite hit the very short-term downside target for wave "B." My call remains for a test of that support at 0.9786 and then for a fairly substantial wave "C & 4" bounce up to 1.0751.
Overall for Currencies
We may see a very short-term bounce in the US dollar as rates rise to meet their upside targets. The may coincide with a fall in the euro (away from resistance) and a fall in the yen (down to projected support). My initial thought here is that these short-term movements will mean good things for US stocks and maybe a little trouble for international equities.
Overall for the Markets
Overall, it looks like we've got a bit further to move higher in stocks, bond yields, and the US dollar before some corrective action commences. The pressure from the greenback's rise should continue to weigh on gold, silver, crude oil, and copper – but I think nice trade opportunities exist there once rates and the dollar put in short-term peaks. It won't be until the second peak out, though – wave 5 for interest rates – that more substantial, intermediate-term corrections may take place. Until then, stay nimble with your moves or don't play at all.