Technical Analyst, Saxo Bank
Summary: Yields have been rising rapidly the past 6 months nearing strong resistance levels. A correction should be expected before the rise continue
US 10 year Treasury yields are testing 3%, closing in on the 3.25% resistance. 3% level is the Inverted Shoulder-Head-Shoulder target outlined in previous analysis.
The US 10 year Treasury Future has reached its Shoulder-Head-Shoulder target extending it close to strong key support at around 117½. A correction should be expected from here.
With the past 4-5 weeks of selling pressure a correction is likely possibly up to test the longer term rising trend line i.e. up to around 121½. However, trend is down and key support is not unlikely to be taken out. A possible picture is illustrated by arrows on the monthly Futures chart.
RSI is in extreme territory currently at 22 indicating massive oversold but with no divergence. A correction on the Future is likely to lead RSI to test its falling trend line.
The US Treasury Bond future has broken the long term rising trend line hovering around 200 monthly SMA. Further down side to test the support at 136½ is likely.
Euro Bund has broken several key levels in massive sell-offs and is close to strong support area around 151.50-148.00. Correction around that area should be expected before sell-off is likely to resume.
RSI is below 40 threshold for the first time in decades underlining the negative sentiment.
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Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.