US 10-year treasury yield - Double top reversalA weekly close below 2.3% would open up downside towards 2.0% (target as per measured height method)
Yieldcurve
US 2-year yield: Former resistance offering supportThe yield found support at 1.28% (former channel resistance) yesterday and has staged a rebound to 1.33%.
The major averages - 50-DMA, 100-DMA and 200-MA are all sloping upwards and nicely aligned (one below the other) suggesting the long-run view remains bullish.
German 10-yr yield – expanding channel formationThe yield looks set to test the expanding channel formation resistance seen around 0.55% as the RSI is yet to hit the overbought territory, although a pull back to 0.393% (Feb 15 high) cannot be ruled out given the loss of bullish momentum as highlighted by the daily MACD.
Oil and 2-year yield divergenceUS Oil prices and the 2-year treasury yield correlation has been strong ever since Trump won the elections.
But from late Feb, the two have been moving in the opposite directions. The reason is quite clear - markets positioned for a March rate hike... given the hawkish talk from the Fed officials.
The question now is will the yields follow oil prices?
It all depends on what the Fed says this week. If the central banks sees scope for faster tightening, the divergence would widen. Also upbeat comments on core inflation would mean less correlation between oil and 2-yr yield.
On the other hand, an unchanged dot plot chart could see yields correct...even in the face of a recovery in oil prices.
German 10-yr Bunds at key support, bullish divergence on intradaGerman 10-yr Bund prices dropped to rising trend line support coming from June low and July low.
Prices are attempting a rebound form the rising trend line support and the odds of a solid rebound are high, if we take into consideration the bullish price RSI divergence on the hourly and 4-hr chart. Even the MACD is suggesting the bearish momentum has run out of steam.
Possible rebound in Bund (drop in yields) suggests we may be in for a more pronounced bout of risk aversion in the financial markets.
USD/JPY and Steepening bond yield curveBank of Japan (BOJ) is likely to overshadow next week’s FOMC rate decision, said Marc Ostwald, Strategist at AMD Investor Services International on today’s finance show. Ostwald focused more on BOJ and explained the reasons for the recent steepening of the bond yield curve and its impact on the financial markets.
Watch the segment with Marc Ostwald here – www.youtube.com
Blame the BOJ
The key message that comes through is that the Bank of Japan (BOJ) is responsible for the recent steepening of the bond yield curve across the advanced world. There is speculation that BOJ would trim long duration bond purchases and increase short duration bond purchases in order to compensate banks and pension funds for the loss due to negative rates.
Furthermore, the BOJ stands divided in three groups with regards to future course of action – one group supports QQE, another one negative rates and the last one has lost confidence.
The whole thing clearly represents central bank exhaustion and looks like yield curve steepening would continue in the future. That also means the Yen may have topped out (USD/JPY could have bottomed out).
James Helliwell, Head of Research at Lex Van Dam Trading Academy explained the trade of the day – Long USD/JPY. Watch the show here - www.youtube.com
