The Futures / Inter Market ReportTrading the World's MarketsOctober 19, 2007
Matthew Caruso, CMT
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T-Notes, Japanese yen, and Swiss franc moving higherCall it a flight to safety or a reversal of the carry trade, either way investors
were buying large quantities of 10yr T-notes, the Yen and the Swiss Franc this past week.
Once again the Swiss Franc was a market that would have been a hedge to the falling stock
market. For a full detailed analysis please see the previous article
http://tradesystemguru.com/content/view/77/58/ . However, the focus of this week’s report
is on the likelihood for a continued climb in the T-Notes, Yen and the Franc.
The 10 year T-notes have formed a significant double spanning across 2006 and 2007
and has recently broken out, as can be seen in figure 1. Adding more confirmation to the
validity of the pattern is that prices came back to successfully test the recent trendline
which is present in figure 1. The strong climb in prices last week was a big sign that investors
are bullish on T-Notes and that the double bottom was a significant one. More confirmation is
coming from the currency markets as well. The Japanese Yen and Swiss Franc are both related
and linked to the U.S. interest rates and are confirming the action seen this past week in
the T-Notes.
Figure 1 10 year T-note Chart by genesisft.com
After climbing to new highs on the year, the Japanese Yen has now successfully
retested its breakout point from this past summer, as can be seen in figure 2. The credit
crunch helped push Yen prices above the previous important high forming a pattern of higher
highs. This past week’s strong move up looks to have instituted a higher low which would
mean that the Yen is now in an uptrend and likely to climb higher. This may be the end of
the carry trade as it existed over the past few years. The fact that the Yen is being
confirmed by both the T-Notes and Swiss Franc as well as entering a seasonally strong
time of the year makes the move up much more probable.
Figure 2 Yen, Chart by genesisft.com
The last piece of this current inter-market puzzle is the Swiss Franc which
is finding support at the breakout of the up trending triangle. Targets from the
triangle point to prices in excess of 0.90 which mean we could have a substantial
climb from here over the coming weeks. Despite the subjectivity of drawing trendlines,
it is my belief that trendline breakouts occurring simultaneously in different markets
which are correlated proves the validity of the trendlines drawn. Therefore this past
week’s action is likely to lead to a sustained move in all of the markets discussed
for the coming weeks. The trend is your friend, and these trends are up.
Figure 3 Franc, chart by genesisft.com
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