Technical Analyst, Saxo Bank
Summary: US 10-year Treasury yields broke below key support and could drop to 3.22. The future is in an uptrend looking at key resistance at 117
Euro Bund continues strong bounce off lows breaking bullish out of falling wedge. 143.38 is key resistance
UK Gilt seems to be struggling for momentum and could be range bound for quite some time
Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team
US 10-year Treasury yields closed yesterday below key support at around 3.41. Yields are set for lower levels and is likely to drop below 200 daily SMA and test 0.618 retracement at 3.22. That is also the 1.382 projection of the December correction.
US 10-year Treasury Note future is in an uptrend short-term after its close yesterday above 115 12/32 and could be forming a rising channel like pattern.
Currently testing 200 daily SMA and seems likely to move higher to the 0.618 retracement at 117. RSI above 60 and no divergence supports the short-term bullish picture.
Medium-term the T-Note has reversed the downtrend if it closes the week above 115 12/32. 117 could be key for the T-Note. If the T-Note gets rejected at 117 AND RSI does not close above 60 threshold on weekly chart we could see selling returning.
Euro Bund future is continuing its strong bullish bounce supported by RSI above 60 and Bollinger bands expansion i.e., in positive sentiment. The Euro Bund is set to move higher to test key resistance at 143.38.
On weekly chart we can see Euro Bund has broken bullish out of its falling wedge like pattern. A move to the 0.382 retracement of the wedge at 143.03 is likely. Just a few points below key resistance at 143.38. RSI breaking above its upper falling trend line supports this bullish scenario.
If Euro Bund manages to close above 143.38 we could see further upside to the 0.618 retracement at 149.40.
If selling pressure returns and push the Bund future to close below 136 down trend is set to resume.
UK Gilt seems to be struggling getting past the 0.618 retracement level at 105.20 despite RSI being above 60 and thereby in positive territory. If it succeeds there is strong resistance at around 108.92. The declining daily 200 SMA will provide resistance around that level.
Gilt could be range bound between 109 and 99 for quite some time.
Medium-term: The gap on the weekly chart is crucial for Gilt. If Gilt closes the gap new lows are likely. If Gilt can close above 108.92 there is upside potential to 0.786 retracement at 113.54.
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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.