BofAML On Silver's Squeeze, The Lurching Loonie, & Treasury's Turning Trend

Tyler Durden's picture

US Treasury yields broke down sharply Friday, confirming a near-term, potentially medium-term, turn in trend; and, as BofAML's Macneil Curry notes, this Treasury turn should prove to be a headwind for select USD pairs, (although BofAML remains bigger picture USD bulls); particularly USDJPY. However, the weakness in the Canadian USD - which was the only currency not to rally against the greenback on Friday - suggests the downtrend in the Loonie has significant legs. Precious metals - most notably silver - could also benefit from the Treasury trend change.

Via BofAML's Macneil Curry,

US 5yr yields rollover

US Treasury yields have topped and turned trend, with 5yr yields doing so in particularly dramatic fashion. The bullish reversal from 4.5yr trendline support says 5yr yields should fall another 10bps/15bps in the In the sessions ahead, with worst case potential for a re-test of long term pivot resistance at 1.22%/1.25%.

$/¥ is topping out

With Treasury yields rolling over, $/¥ is set to do the same. A break of 103.74 would confirm the bearish turn in trend. While the Head & Shoulders Top targets the 102 area, CFTC positioning and the completing 5 wave advance from Feb’12 and Oct’13 says weakness can extend to the 200d (now 99.70) and below.

$/CAD: the exception to the rule

Friday saw the US $ fall against all major currencies EXCEPT THE CANADIAN $. Indeed, $/CAD has now reached levels not seen since 2009. While we could see a near term pause or correction, weekly charts say that this trend has significant room to run, with the multi-year Head and Shoulders base targeting 1.1666/1.1841

Silver squeeze

With the US Treasury market turning and the US $ near term vulnerable, precious metals should benefit. Silver is particularly worthy of note as a break of 20.51/20.62 resistance would complete a near term base and turn higher opening further gains towards the Oct-30 high at 23.09

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flacon's picture

My silver chart shows silver entering the lower end of the cumo cloud at about $20.27 with the cloud extending up to $20.97. When trading within the cloud it can do a lot of head-fake moves. Also at the top of Bollinger band and it has the declining 50 DMA to contend with.


quasimodo's picture

My crystal ballz says silver should be higher, much higher than it included. TPTB don't give a rats ass what my crystal ballz say if they think it needs a smackdown at will.

TaperProof's picture

last smack down was a waste of resources, like i predicted and you talked smack to me about

ejmoosa's picture

The bullies will bully silver until the bullied rise up and beat the shit out of them.

That's the way it happens in the real world, and silver is no exception.

Conax's picture

Bullish news for silver usually brings out the Energizer Monkey Hammer, the one that runs all day. Like Rocky, silver can take a terrific beating.  Love that shiny!

We'll see what happens in the morning.

TeamDepends's picture

That was then.  Got a monkey hammer?  Let me introduce you to my little Kong Jackhammer friend....

Grande Tetons's picture

January 14th is just around the corner....and the Yen is appreciating as we speak. 

El Oregonian's picture

HooYah! They'll monkey hammer and use the COMEX stash to dump it's Metal to flood the Markets thereby lowering the prices... oh wait, they've tried that... Huh? What do you mean the warehouses are empty?

Well then get JP's under Chase No.1 vault... What? They gave the Chinese the empty vaults for 742 MIL??? But, but, but that property is worth at least a cool 2.4 Billion!!!

WHAT? Those Mao-Lovers own Free Trade Zone sector land in Idaho??? What-t-t-t????

Grande Tetons's picture

IMO short the last commodity currency standing, KIWI.  China can buy cows, no? 

q99x2's picture

Bitcoin distribution around the world seems to be normalized after the Chinese smack down. Hmmm. Something doesn't seem right. US and China almost trading equal amounts.

El Oregonian's picture

The "Good Cop-Bad Cop" show has went full retard and is now being exposed for what it has been all along... A Satanic dance for the dumb unsuspecting sheep...

pitz's picture

I guess BoA doesn't read the CoT report.  Record short-interest by the leveraged speculators against the Canadian dollar.  Which almost always is the sign of a local bottom. 

Pareto's picture

Ordinarily Pitz, I would agree.  Except, given the uptick in CDN unemployment and a very weak monetary policy, the anticpated GDP growth required to sustain debt servicing and government expenditures isn't sufficient to support the tax base needed to pay for it.  CDN central bank is going to have to start monetizing Federal government debt (or some kind of CDN QE equivalent).  Bottom line, with growth rates slowing EVERYWHERE, there is not a lot of demand to pay for raw resources which is all that Canada really offers.  The manufacturing in Ontario and Quebec have been gutted by overseas competition as a result of domestic unions pricing themselves out of the market and weak central bank policy having the effect of raising prices not competitive with international substitutes.  Ontario and Quebec are teetering on recession and thats going to have the effect  of increasing debt obligations further.  In my opinion, I expect the $CDN to reach 2008-09 levels of $USD .82 on the index before parity ever returns and maybe even less.  The migration of east to the west has been phenomenal and that is really all I needed to see to surmise that things will get worse before they get better.  Watch the market call me out in coming days, but, while I bet I am early, I bet I am not wrong.  You can't debase your way to prosperity without first impoverishing the middle class.

pitz's picture

I think you're missing the deflation of the housing bubble in your analysis.  A deflating housing bubble is extremely CAD$ positive as it tends to kill consumer consumption (= imports).  While leaving the exports mostly intact or even increasing as there is reduced domestic consumption.


Pareto's picture

While it bankrupts the banks?  Deflating housing bubble is unlikely unless monetary policy tightens (rates rise).  Do you see that happening?  nuhh uhh.  The second yields start ticking up they will buy that toxic crap up.  I mean, is the CDN housing market in a bubble? Sure.  Will they let it pop?  Nope.  To me, housing is a small piece of the puzzle anyhow.  Productivity, employment, growth, GDP, and debt, are much larger elements that are going to move the $CDN.  Besides, you really havent clearly defined what the catylyst would be for a deflating housing market in Canada.  We can't just assume the housing market to deflate without central bank interference.  I think there will be downward pressure on housing prices as a result of increasing unemployment but, this is hardly a reliable or significant impetus for a rising $CDN.  I don't follow that, unless of course you are assuming rising immigration.  The $CDN is a function of: (1) how much people outside the country want to buy their "stuff", and (2) government debt.  All else equal, given a decrease in exports (as demonstrated by ZH in a million places), anticipated GDP will come in way less than anticipated, and not near enough for tax revenue to cover debt servicing obligations and/or current government expenditures.  They have to print/keep yields low.  This gets ugly for Canada very quickly in my opinion.

pitz's picture

Bankrupt the banks?  Of course not. The housing debt is mostly CMHC-insured.  At least the worst quality loans are.  You can think of the CMHC as being a de facto bailout mechanism for the banks, the die already being cast (unlike Fannie/Freddie, which required legislation in order to be bailed out!).

And the bubble has been 'popping' for the past 6 months now, reaching an apex last spring with prices now falling.  This is why Canada's inflation numbers have been so weak.  Credit is tapped out.  There was a huge up-tick in unsecured credit in Q3 and Q4, as the HELOCs have mostly been tapped out and there's no more equity to pledge.  Mortgages are a $1.4T business in Canada, over twice the national debt, so deflation in that sector can (and I would submit, is) having a profound effect on the Canadian economy.

Catalyst for Canada's housing bubble popping?  Record home ownership rates.  Huge onslaughts of supply.  Things simply being unnaffordable to the remaining buyers.  Not really any more complicated than that.  Its not like it took an asteroid to cause housing to fall. 

Want an anecdote:  Westjet running 136-seat planes to Arizona with 38 passengers on-board during one of the coldest winter's on record:


Lore's picture

Re: "And the bubble has been 'popping' for the past 6 months now, reaching an apex last spring with prices now falling."

The local market for this Canuck topped roughly 3-4 years ago. Official assessments just got updated: down another 10-15%. Official assessments always lag reality, and Canuck market always lags USA market.  Everything is leaking air, especially apartments. Funny, the construction continues. Stupid is as stupid does.

We're also seeing considerable food inflation. Speaking broadly, I would say regular (non-sale) grocery prices are up 25% YOY, some items much more. Interestingly, the highest-priced premium grocery stores (tack an extra 25% onto the price of everything) are still crowded with shoppers.

Pareto's picture

Mortgages are a $1.4T business in Canada, over twice the national debt, so deflation in that sector can (and I would submit, is) having a profound effect on the Canadian economy.  But, even if thee is deflation in housing, how are you transalting that to rising $CDN?  Rates have to rise before the $CDN "ralies" against other currencies, or, there is a significant rise in exports and I see neither of those happening.  Where is the demand for $CDN coming from?

pitz's picture

Domestically, to repay debt.

Rates don't have to be higher to strengthen the currency.  See the US and Japanese currencies.   

pitz's picture

Besides, going back to the deflation argument, what do you think happens when the domestic borrowers (who are indebted to record levels) slow down/stop their borrowing?  Borrowing Canadian dollars on a mortgage or a line of credit is like shorting the Canadian dollar.  When debt peaks and goes into reverse (ie: is paid back), that's closing the short.  Any stock trader knows that such usually leads to the stock going up, not down.  

jaxville's picture

I have been watching the Canadian dollar fall against the US $ for some weeks now. I gotta ask; "how on earth can a small business trading across the border make sound long term plans in such an environment"? The swing in valuations exceeds the margins in many larger enterprises.

  The only answer to this is a stable currency regime with fixed exchange rates. Since stable currency is an oxymoron it will always be a pipedream.

 All the financial firms probably can't get over themselves fast enough to offer some sort of hedge product to minmize the risk of currency valuations. Sadly, all the business owners I know who deal across the border view this as some sort of norm.

ItsDanger's picture

It is the norm.  The rather quick volatile moves with any significant change in the price of oil can cause difficulty in cross border business activity.  You would think that the currency moves would show smaller variance after all the growth in the Canadian economy (and troubles in US).

El Tuco's picture

The only businesses that really suffer are those that are buying from China in USD and then having to sell to Canadian companies. They will have to raise their prices because of the lost margins due to exchange. If they sell into the US then all things are equal (buy in USD and sell in USD). But I must add that the Canadian Economy has become mostly a service industry economy where financial, real estate and insurance rule the day. Most of the major manufacturing hubs in Canada have been slaughtered. Very little left and it seems to be getting worse. If China rolls over say good bye to raw materials/resources. The mining and lumber industries will probably roll over also.

Fuck, things aren't much better in the US. So many small business people are struggling. I have lived through a few recessions and never seen things so fucked up and there is no end in sight. When a company like Twitter is worth more than the combined worth of FedEx +Target + a few more companies, what could go wrong?

disabledvet's picture

what is being financed with the dollar/yuan fixed currency regime? the theory is that "commodity prices can only go up" as long as the yuan continues to surge. but Chinese equities have been at rock bottom for many years now...not confirming the demand thesis. do we now have to contend with a new supply thesis? oil imports have totally collapsed into the USA...this makes no sense this oil can be on in foreign markets for just dollars a barrel. i really think we're setting up for a commodity crash of truly epic proportions. if natural gas starts to plunge in price "look out below." the ptb are doing all they can to keep production off line. I think they are failing/have failed.

wisehiney's picture

Be careful with Silver. When those equity margin calls come, they will sell paper silver. Deflationary environment also.

Fiat agnostic's picture

The silver paper market is heavily short - covering to cover margin calls would create a short squeeze and push prices higher, theoretically...

wisehiney's picture

Probably so, just because I was hoping to buy more phyzz at a better price.

The Heart's picture

Now, lets talk about turning trends.

Seems, there is a lot of scuttlebutt going on behind the scenes of the fronts.

There are lots of reports about incoming objects. Is this the comet ISON debris trail we are going though? Is there that bigger SURPRISE that supersedes all earthly things beginning to happen? Nothing is as big as say, some large celestial event. Not even fukushima. Were this true, it could well explain the lack of concern for fukushima.

Check this out. Can anyone explain what these are?

Is this a trend?

And here is an interesting report:

A quote from a well known blog:

"NOAA is owned by David de Rothschild. He is geoengineering god on this planet, and he owns all the weather satelites, meaning you can't trust any information from supposed legitimate weather resources, for they are all owned by one person, meaning they are manipulated indefinitely to appease whatever geopolitical moves are planned."

What's up, doc?

beavertails's picture

And the count down before the BOJ buying in 5. 4. 3. 2. 1 minutes

whisperin's picture

I'm wondering if bitcoin is a possible disruptor to the interest rate arena? The shocking result of acceptance with overstock may have unmasked the serious demand for an alternative currency to fiat. This might cause rates to go higher to defend one's currency. Thoughts or am I barking up the wrong tree so to speak?

TN Jed's picture

Timed with the shocking wave of credit card hacks I'm starting to think this is all one giant coincidence.

Bobportlandor's picture

Indonesia rocked the mining world on Sunday putting into effect an outright ban on nickel, bauxite and tin ore exports.

OwnSilverPlayMusic's picture

I'll trade my silver for bourbon, weed or irrigated land.  Ain't got much use for USD.  Oddly enough that's the only thing I see it priced in. 

fijisailor's picture

BlackRock Inc.’s Evy Hambro, manager of its $8 billion World Mining Fund, said gold supply may fall “quite rapidly” as producers curb output at expensive mines.

mvsjcl's picture

Already happening all over.

Silveramada's picture

We'll soon find out, after all, Jan 2014 could be a new record sales year for American Silver Eagles at the US mint.

new game's picture

imo the pile in trade is about to emerge. the tamp downs will presist.

but it appears as though the patience for this bottom has paid in spades.

accumulating as 1251 breaks down. tad a buy. silver, well, truth be know just too much weight to be fuckin with it.

folks we are there...

realWhiteNight123129's picture

I have not crystal ball nor any chart, just some obvious facts.

Financial assets (stocks + debts) are way to high in relation to GDP (present goods, i.e. goods and services, commodities). Still much muh higher than the peak of the 1930s. Market debt is down a bit, but stocks are much higher, so all in all Financial Assets (claims on future GDP) are very very high. The problem is that today´s GDP is quite small.

I do not need to predict the future except for one thing: The ratio of Financial assets to GDP (present goods, and commodities) will shrink.

So do you want to buy Financial Assets or Present Goods now? Yeah... I knew it.




dragoneyes74's picture

Geez, I agree with Macneil on all of this. Looks like a temporary reversal in the recent trends is at hand. Silver and gold still have to pop thru those downtrendlines, but in light of last week's price action, it's looking more likely. Real technical damage to the dollar starts with the loss of $79.80, but isn't solidified until it loses $79 on closing basis. If so, it certainly could go deep into the $70s, which would propel the Euro deep into the 1.40s, but I still think there needs to be a deflationary collapse before we ever get to the stage of currency crisis for the dollar, so I expect this to be temporary over the short or medium term. I would love for the USD/JPY to make it all the way to the 200-day as I believe that presents an excellent buying opportunity for the long-term, but I'm not convinced at the moment we'll get that far. We'll see how this goes. And if the Euro makes it deep into the 1.40s it will present a great short when the stream runs out. Hopefully, these current reversals continue this week as it will give some short term clarity to the markets. And with the debt ceiling negotiations looming next month, a VIX play may be in order as well.

Space Animatoltipap's picture

Precious metals are available at bargain prices at present. The political faith currencies are heavily overvalued and operating in a utterly corrupt system. Janet knows it. Stanley also. They use the $ as a tool, ready to redesign it when considered necessary. Pyramid ponzi schemes never last very long unless you keep inflating them. 

Sufiy's picture

Adam Hamilton: Silver Short Squeeze

 Adam Hamilton presents his outlook on the recent situation in Silver market. Gold and Silver have very strong start in 2014 recovering from the testing of Double Bottom in 2013 on the new money allocated to the sector. If next week this dynamic will continue we can have the very explosive situation as it happen in summer 2013 with Silver skyrocketing towards 25 mark. Junior miners should participate in this fireworks again like it happen with McEwen Mining and TNR Gold before, which we are following here. The chart above from KWN demonstrates that Silver is now extremely oversold.