Bonds Had More Fun Last Week
Today’s Spotlight Market
International currency uncertainty often causes a flight to safety with investors rushing in to buy 30 Year U.S. Treasury Bonds. The Euro and Greek uncertainty from earlier this summer was one such event. This week, China surprised international markets by devaluating the Yuan.
Fundamentals
On Tuesday, August 11th, the Chinese central bank shocked the international markets with an unexpected devaluation in the Yuan. The following day, a second devaluation occurred. Equity and commodity markets reacted violently, with sell offs in most equity markets as well as Crude Oil. Gold prices rose along with 30 Year Bonds. A devalued Yuan could lead to lower prices for Chinese imports, adding to more deflationary pressure in the U.S. Reduced energy prices, if sustained, could continue to indicate a very low rate of inflation, putting doubts into the minds of traders about a September Fed rate hike. However, positive U.S. economic news from an increase in July retail sales put a damper on the bond rally mid-week. Continued growth in the U.S. economy may very well keep a September rate hike on the table. ?
Technical Notes View Today’s
Chart Turning to the 3 month continuation chart, Bonds seem to have hit a resistance point at the 159-0 level. However, most other trends are still bullish. The 20 day Simple Moving Average (SMA) is above the 50 day SMA. Bond prices are above the 20 day SMA, another bullish sign. 14 day Relative Strength Index is also slightly bullish at 60.85.
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