Technical Analyst, Saxo Bank
Summary: Yields are on the bounce in both US and EU. Both 2 and 10-year Government yields have formed bottom and reversal patterns indicating strong rebounds.
US 10-year Treasury yields formed Friday a Hammer which is an indication of a bottom and reversal. Not the most reliable bottom and reversal candle however, with a 60/40 track record i.e., 60 % of the time it is a reversal (Source: Bulkowski – the pattern site) and as can be seen 20the March 10-year yields also formed a Hammer.
However, in this case there is a greater likelihood of this being a reversal with yields bouncing from twice from 3.28 to close above support at around 3.32.
This behaviour has formed a potential Double Bottom pattern that will be confirmed if yields closes above 3.65. Combined with the divergence on RSI the bottom and reversal scenario seems more likely than a week ago.
Very short-term a move to test strong resistance at around 3.65 seems likely. 21, 55 and 100 MA’s will add to the resistance.
A close above 3.65 gives potential to a move 3.87 – 4.0%.
If 10-year yields are to be pushed lower to close below 3.32 the Double Bottom jeopardized and if closing below it is cancelled with yields like to drop down to around 3%. That scenario is likely to play out if RSI closes below its rising trendline
US 2-year yields bounced strongly Friday from the Consolidation area to form a Hammer candle. Combined with the RSI divergence there is a rebound potential short-term to resistance at around 4.22. 21, 55 and 100 daily MA’s will add to the resistance.
If 2-year yields slides lower to below 3.50 there is support at around 3.38.
German 10-year Govm. Bond yields bounced last Monday after dipping below key support at around 1.96 forming a Hammer. Sell-off Friday didn’t manage to cancel the Bottom and reversal candle so 10-year yields could experience further rebound. A close above 2.39 will establish a new uptrend. RSI close back above 60 will confirm it.
If that scenario plays out there is short-term potential to previous peak around 2.77
For 10-year yields to confirm a downtrend a close below 1.96 is needed.
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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.