Technical Analyst, Saxo Bank
Summary: US 2 & 10-year Treasury yields collapsed due to turmoil in the US banking sector but now seems to stabilize and rebound. Trend is still up short- and medium term. Read this analysis for levels needed for this to change
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Today's Market Quick Take from the Saxo Strategy Team
US 2-year Treasury Yields collapsed due to the turmoil in the US banking sector dropping below 4%. Dipping below 200 daily Moving Average yields bounced to close just above 4%. Rebound continues today having retraced 0.382 of the drop. If yields move above the 55 and 100 daily MA the rebound could take it to the 0.681 retracement at 4.55
On the weekly chart there is massive RSI divergence indicating the uptrend in yields are stretched. IF 2-year yields take out this week’s low at 3.83 we could see a correction down to around 3.45 – 3.18, possibly dipping down to support at around 2.85.
If weekly RSI closes back above its falling trend line yields are likely to resume uptrend and make new highs
US 10-year Treasury Yields has bounced from the 0.786 retracement at 3.49 dipping below but rebounded from the 200 daily Moving Average. Rebound has reached 0.382 retracement at 3.68 and if it moves back above the 55 and 100 Moving Averages the 0.618 retracement at 3.83 is likely to be tested.
If 10-year yields moves back below Monday trough at 3.42 it is likely to take out key support at around 3.32. If that scenario plays out 10-year yields could drop to around 3%.
The US 10-year Treasury Note future failed to close above the 200 MA and has retraced 0.382. However, RSI is now back above 60 threshold i.e., in bullish sentiment but if the T-Note closes back below 100 MA i.e., below 112 27/32 bear trend is likely to resume.
For the 10-year T-Note to establish a bullish trend short- and medium-term a close above 116 8/32 is needed. If it does there is room up to around 121-122. A close above the upper falling trendline could be an indication of this scenario to play out.
Below is the daily and weekly chart with Ichimoku cloud. Daily price action was rejected failed to close above the cloud and is now back below.
Weekly is still well below the Cloud and below falling trendline. The 10-year T-Note is thereby still in Bearish mode short- and medium-term i.e, higher yields should be expected.
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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.