Hey There Income Hunter,

The broad indexes put in their fourth-straight higher weekly close.

All sectors were up on the week as investors cheered the big drop in both consumer and producer prices.

Plus, the small business and UMich sentiment indexes increased for the first time in months. 

The only thing lacking was volume, which is typical in August with most of Europe closed.

So let’s put this rally in perspective.

According to prime brokerage data, much of the price rise was due to hedge funds de-grossing, meaning they covered shorts and sold longs. 

It has been a month of “risk off” for sure, as you can see in the graph below …

Can we make it a fifth week in a row?

Today, we’ll take a look ahead at the key economic and chart data that may drive over the next five trading days.

Data for Days

This week, we will get a little bit of everything, including the all important housing data, which has been trending lower.

Retail sales, which will give us clues on the state of the consumer and initial claims for forward-looking data on the jobs market. 

Interest Rates 

Interest rates across the US Treasury yield curve have been rising and the slope of the key 2-year/10-year curve has been inverting, with the shorter-term bonds having higher yields.

The spread has been hovering around -.40%, which is an indication of a weakening economy. 

Look out for further inversion, which would be a warning sign for stocks that the Fed will keep tightening. 

The 10-year note trend has been to higher rates, which doesn’t jibe with the lower inflation. 

Remember, last week’s good news on inflation was mostly due to a big drop in energy. So, if investors believe inflation will trend lower, the 10-year rate would be dropping. 

The other signpost for what drives bonds is foreign flows. China and Japan, the largest holders of bonds, have been net sellers for years. 

That is very important to watch for, because higher interest rates will have a negative impact on the economy …

Bring It Home

The dollar’s value is also key to the markets and the economy. After the inflation numbers came in weaker, the dollar dropped significantly .. 

However, Fed officials quickly came out and stated that the Fed will continue tightening until inflation trends much closer to the central bank’s 2% target. 

I sent an alert to Power Income Trader subscribers to buy the dollar and sell the Euro via the Invesco Euro currency ETF (FXE)  and was able to close the trade 2-days later for a 42% gain …

As you can see in the chart below, FXE rallied right up to the 50 dma and a previous triple bottom that provided strong resistance above. I will look for an opportunity to reset the trade next week. (And you can be there to profit with me in Power Income Trader.)

Stay tuned … This week will provide new information and with Friday’s large option expiry (OPEX), we could be in for some wild swings

Have a great week and as always …

Live and Trade With Passion My Friend,

Griff