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Dollar Bond Study
posted May 18, 2005 at 10:00PM

Just hacking around. I have mentioned in past posts about the relationship, non-intuitive relationship (for me)between bond prices and the USD index.

Basically all strong countertrend rallies in the dollar over the past three years , have been accompanied by drops in the bond price. In other words higher yields lead to increaing dollar value.

I can speculate on "why" this is but that is all it would be...speculation. Macroeconimics is not my forte.

More important is the bond dollar ratio which is in a critical junction pattern wise.

It is either topping out and ready to roll over, which if the pattern holds, means the dollar is going to go. Eyeballing the chart I would say 1.3 is the level to watch. New highs would suggest a new powerful impulse high.

Obvious a move up in bonds would mena the market is afraid of deflation, and expecting the Fed to print money like mad thus the "anticipation" of the dollar being devalued. (Of course that means the market is confident that the Fed will defeat deflation.

If they are not the dollar and the bond start moving up together then the market is certain that "real" Prechtorian style deflation is on the way. (Bad for gold)

If bonds and the dollar both drop, then the market is saying the FEd is losing the war on inflation. (Good for gold)

Excuse the meandering...but sometime these things really are notes to myself to try to sort out relationships between various markets

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