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Technical Update - Indicator pointing in each direction on the US 10-year Treasury future vs. yields, but yields could reach 5.25%
Kim Cramer Larsson
Technical Analyst, Saxo Bank Group
Summary: The RSI indicator on the US 10-year Treasury future vs on the yields is divergerging.
On the future there is divergence indicating exhaustion of the downtrend whereas on the yields there is no divergence indicating we could see higher yields after a correction.
Medium-to longer-term there are indications of even higher yields towards 5.25%. The technical picture is not crystal clear, however.
The future has formed a Morning Doji like pattern (Circled). The pattern is not text book perfect as ideally the body of the Doji should not touch the Body of the bodies of the candles surrounding it i.e., the preceding bearish candle and the subsequent bullish candle.
However, with the RSI divergence, which is indicating a weakening of the downtrend, a correction could be seen. A correction up to test the upper falling trendline is likely.
If the future is breaking above the falling trendline key resistance at around 111 30/32. A close above will confirm downtrend has reversed.
However, there is still strong overhead resistance at around 113 8/32 where the 100 and 200 Moving Averages will add to the resistance.
However, with the RSI divergence, which is indicating a weakening of the downtrend, a correction could be seen. A correction up to test the upper falling trendline is likely.
If the future is breaking above the falling trendline key resistance at around 111 30/32. A close above will confirm downtrend has reversed.
However, there is still strong overhead resistance at around 113 8/32 where the 100 and 200 Moving Averages will add to the resistance.
Weekly chart is showing RSI divergence and strong support at around 108 26/32. If RSI is being lifted to close above its upper falling trendline the future could enjoy a sweet little bounce to test its falling trendline.
Bigger picture/Longer term - monthly chart.
The Treasury future could be in the process of forming the 5th vawe lower. If the future is taking out this months low at 108 26/32 we could see a sell-off down to the 1.618 projection of vawe 4 and strong support at around 104
US 10-year Treasury yields uptrend is intact with a higher close last week. As previously mentioned, there is no divergence on RSI, the RSI values are rising with the higher yields, indicating likely higher yields.
However, with an Evening Doji like top and reversal pattern (circled, and not perfect since the body of the Doji candle is inside the preceding bullish candle and the subsequent bearish candle)
Nevertheless we are likely to see a correction that could take yields down to test the lower rising trendline.
If yields are being lifted to take out the 4.36 peak there is short-term potential to 4.75 i.e., the 1.382 projection, but there is no strong resistance until around 5.25 – see weekly chart
A close below 3.95 will demolish the bullish scenario
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