US Bonds Soar, 10-Year Yields Plummet
- Gold Achieves Fresh Records with No Signs of Stopping
- USD/CHF Breaks Key Support, Downside Risk Increases
- Payrolls Data Presents the Next Major Test
Summary
US long bonds experienced a remarkable bullish breakout recently, causing benchmark yields to plummet to new year-to-date lows. This shift, combined with technical indicators, limited supply, and weakening US economic data, sets a favorable stage for assets influenced by long-term interest rates. In this analysis, we will delve into the implications for gold and the Swiss franc, two significant yield-sensitive investments.
Bond Bulls Seize Control
Before analyzing the technical signals for these assets, let’s begin with US 10-year Treasury note futures, a highly liquid futures contract globally. Technical analysis serves as a valuable tool for assessing the directional risks associated with benchmark US Treasuries. Since bond prices move inversely to yields, the same principle applies to key US 10-year bond yields.
Wednesday witnessed a clear price signal as futures surged through a critical resistance zone on robust volumes. Factors such as weakened demand at US services firms and unchanged long-dated Treasury issuance in the US government’s quarterly refunding announcement contributed to this surge. This has resulted in a constrained supply of long bonds compared to the demand.
With bullish signals from RSI (14) and MACD, the risk seems tilted towards further upward movement, translating to lower 10-year yields. The chart highlights the next significant resistance levels, indicating potential gains in the future.
Looking ahead, the upcoming US payrolls report will play a crucial role in validating this breakout, making the payrolls figure and revisions particularly pivotal.
Long Bond Yields’ Impact on Markets
The broader market implications are depicted in the chart below, illustrating the rolling 20-day correlation scores between US 10-year Treasury note futures and various markets, including FX, stocks, crypto, and precious metals.
While not all assets exhibit a strong positive or inverse relationship, many, such as the Swiss franc, gold, and USD/CHF, have depicted notable correlations. Notably, USD/CHF’s inverse correlation, though not robust, has shown significance over longer durations.
USD/CHF is experiencing downward pressure due to shrinking yield differentials, setting the stage for potential bearish movements. With a focus now on gold and USD/CHF, let’s examine the individual scenarios.
1. USD/CHF: Bearish Signals Accumulating
USD/CHF is displaying multiple bearish signals on its daily chart, with recent candlestick patterns and technical indicators hinting at further declines. The price is currently hovering near the 50-day moving average after breaking below uptrend support from late September.
Should USD/CHF breach and close below the 50DMA, traders seeking bearish opportunities might consider establishing shorts with a stop above former uptrend support. The January low stands as a near-term obstacle, with a break potentially leading to a move towards lower support levels.
2. Gold: Bulls Maintaining Control, No Signs of Reversal Yet
Gold continues its bullish trend, benefitting from falling US bond yields and a softer USD. While RSI has entered overbought territory, there are no clear topping signals yet. Dip-buying remains a prevalent strategy as the bullish momentum persists.
Support and resistance levels provide guidance for potential price movements, with dips likely to attract buying interest.
Analysis
The surge in US bond prices and the subsequent decline in yields have significant implications for various asset classes and financial markets. As bond yields influence investment decisions, the recent developments in the bond market can impact individual investors and institutions alike.
For instance, the decline in USD/CHF indicates potential downside risks, while the bullish momentum in gold presents opportunities for investors seeking safe-haven assets. Understanding these dynamics and correlations between different asset classes can help investors make informed decisions and navigate the ever-changing financial landscape.
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