Technical Update - Euro 10-year yields reaching levels not seen in almost a decade. But more to come
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: European yields have been on the rise since the beginning of the year in what is probably the steepest and fastest rise ever seen. The 10-year yields are now reaching levels not seen in almost a decade but there are likely higher levels in coming months and year.
Ahead of ECB Emergency meeting today let’s have a look at Euro 10 Years Yields and Future from a technical perspective.
The Euro yields have been on rise since the beginning of 2022 and have now broken the long-term falling trend going back to the 1990’s.
Since 2008 it has formed a falling Wedge like pattern which is broke bullish out of last year. Yields are now close to reach 0.5 Fibonacci retracement of the “peak to low” of the Wedge where there is some resistance. Expect minor correction around this level i.e. at around 1.95%. Yields might try to break 2% but not unlikely to fail breaking above in first attempt.
If breaking above 2% next key resistance is at the 0.764 retracement at around 3.35%. A level not seen since the Eurozone crisis in 2010-2011, where several emergency and bail out packages where issued and ECB started buying Government bonds. See timeline here https://www.bbc.com/news/business-13856580
However, according to the theory of Wedges the price should reverse to at least the peak of the Wedge (for a falling Wedge) i.e. in this case at it would be at around 4.6%. If that scenario unfolds it would be a yield level not seen since 2008 when the Liquidity/Financial crisis was unfolding. With regards to time line, it is always hard to predict but after the break out of a Wedge the move back to the top range of the Wedge is much faster than the time span of the building of the Wedge. Roughly 20-35% of the Wedge time line i.e. 2-4 years. Break out was a year ago.
The Euro Bund future has dropped 7% in June alone. Since The future closed below key support at 167.52 back in February this year it has taken out one support level after the other. It paused briefly at the top range of the strong support area 151.44-149.60 in May but has accelerated sell off from the start of June, now trading below 200 Monthly SMA with no strong support before around 138.40-136.40. 136.40 is 0.618 Fibonacci retracement of the 2008-2021 Bull market.
This level is likely to be reached but do expect a rebound from here. However, looking a bit longer-term i.e. end of the year going in to 2023 lower levels are not unlikely. If Bund future closes below 136.40 there is no strong support until around 120.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.