The yield curve (or spread) is the difference between the short rates (set by the Fed) and the yield on the longer-dated bond. The yield spread is now about its widest in 40 years. This is a boon to the banks, which can borrow for almost nothing and then buy the long-maturity bonds and rake in the money. This is what the Fed wants; when the banks become bloated with money, they have four choices -- they can make crazy investments (like they did with home mortgages), they can increase their dividends, they can pay the money out in bonuses, or they can lend the money to businesses who really need credit.
As the Fed pursues its Qe2 policy of buying Treasury bonds, the creditors of the US become increasingly worried about their investments in Treasury securities.
Talk is talk but market action is for real. Below we see a weekly chart of the Dollar Index, which is the dollar matched against six other fiat currencies. Here we see the Dollar Index trading below its blue 50-week moving average and also below its red 200-week moving averages.
Turning to the lower configuration on the chart, we see MACD "on the edge," with the histograms slightly below zero. At the top of the chart, we see RSI below 50, which puts the Dollar Index just below the 50-neutral level.
The whole look of the chart suggests a head-and-shoulder top with an abbreviated left shoulder and more developed right shoulder. The critical level on the downside is about 76.5. If that level is violated, we can expect the dollar to lose value fast.
The weakness in the dollar is not lost on gold. Gold is the safe-haven alternative to the dollar. Gold has been in a correction-consolidation phase all during the year 2011. The chart shows a sharp and frightening break into February, then a recovery that has already recovered over 50% of its January-February losses. The most recent development occurred when gold closed above its 50-day (red arrow) moving average. This has placed gold in the bullish juxtaposition, gold above its 50-day MA, and the 50-day MA above its 200-day MA.
At the bottom of the chart we see that MACD is now in its bullish configuration.
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