US 10 Year Note
Our attention is focusing on the US 10 Year Note which has been falling steadily since this trade flare up. We are of the opinion that the Chinese are not likely to play this card. It’s worth an estimated $1.5T. It is not in the interest of the holder of debt to be repaid in currency worth less than when the loan was extended. This is what would happen were the Chinese to demand redemptions of any sizable portion of their holdings in US government debt. The threat would cause a great exit from the US Dollar lowering its value and allowing the US to indeed redeem their debts to China with cheaper US Dollars. What we expect and are beginning to see it that the mere fear itself of the idea, regardless of the low probability that the idea would ever be turned into action, is driving the US 10 Year Note down steeply.
The US index which is heavily weighted toward technological corporations has shown the strongest vigor during the recent blessed rally in the US markets. The Asians have held up their end well enough and the Europeans are pushing ahead too by opening their wallets as well. We are trading the NASDAQ up entering the trade at 6743 looking to take profits at the 6768 to 6788 levels with our stop loss orders placed between 6722 and 6708. There is nothing robust enough here to look beyond the end of the trading day with this positIon. It could reverse and continue its slide of two plus months.
Coffee Pointing Down
Current Coffee price is at a level it has often frequented and the flag is pointing down. Meaning that the technical formation called a flag is forming. That is where the highs are falling while the lows are rising “forcing” price to break out of the triangle/flag. The odds are that the breakout will be to the downside. Both because that the direction of the current wave as well as the fact that price is below its 200 bar EMA. All signs point to continued weakness in the price.
This trade has been performing well for us for 5 months consistently now. The fundamental weakening of the Aussie largely explains the direction. Demand from China for Australia’s resources which are a large percentage of Australia’s GDP is down, hence the lowering of the value of the Australian currency. A nation/trading bloc’s currency is the equivalent of a share of stock in a corporation. It is the market’s ballot which votes whenever it sees a situation that can be profitable because the value of the currency may not be reflective of the market’s sense of the asset’s worth.