Warning Shot Across the Bow for the US Dollar

From Bloomberg News:

Dollar to Decline as 10-Year Yields Rise: Technical Analysis
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By Oliver Biggadike
April 29 (Bloomberg) -- The dollar will probably decline should 10-year Treasury note yields rise “decisively” above 3.06 percent, Citigroup Inc. said in a report citing trading patterns. The greenback strengthened in 1993 against the currencies that went on to form the euro as U.S. 10-year notes rallied, technical analysts Tom Fitzpatrick in New York and Shyam Devani in London wrote today in a note to clients. The U.S. currency erased most of its gains as yields climbed in 1994, they said.
“If this were the correct picture then one would expect significant renewed dollar weakness,” the analysts wrote. Buying the dollar and Treasuries was “the trade of choice” toward the end of 2008 and “is now unraveling,” they said.
The dollar fell for a second day against the 16-nation euro, depreciating 1.3 percent to $1.3323 at 12:06 p.m. in New York. The yield on the 2.75 percent 10-year note due in February 2019 fell two basis points, or 0.02 percentage point, to 3 percent, according to BGCantor Market Data. Ten-year note yields last touched 3.06 percent on Nov. 26.
Ten-year note yields have held in a range between 2.46 percent and 3.02 percent since March 19, the day after the Federal Reserve said it would buy up to $300 billion in U.S. government debt over six months, as concerns about record Treasury supply were offset by the central bank’s buybacks. The yield has averaged 4.23 percent for the past five years.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
To contact the reporter on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net

Commentary: In a previous post we discussed a possible timeline for the dollar crisis. http://whatisthatwhistlingsound.blogspot.com/2009/04/economic-timelines-pigs-and-lipstick.html The Fed has already diluted the dollar through Quantitative Easing. If they stop buying their own bonds investors will insist on higher yields and the interest rates will rise accordingly. We will need to watch the bond market carefully to determine the best time to lock in any floating interest rate loans.