Bonds - the new hot potato? EUR/JPY probes key support
Matt Simpson January 19, 2022 1:25 AM
Bond traders continued to offload their holdings and send shimmers across global markets. EUR/USD also broke key support, so now will EUR/JPY follow suit?
Traders are offloading bonds like hot potatoes and sending yields higher. And they’re pushing yields so high and so fast we had wondered if they’re betting on the Fed hiking by 50 bps at their March meeting. Yet market pricing says otherwise. According to Fed funds futures, there’s just over a 90% chance of a single 25 bps hike in March compared to just over a 5% chance of a 50 bps. Even by May the odds of that second hike are just below 50% hike. Yet by the June meeting there’s a 45% chance of rates sitting at the 75 – 100 target range, so there’s the potential for a couple of hikes lurking in there somewhere, even if it’s not yet fully apparent or in a single meeting.
And whilst the rise in yields is not limited to the US, their rate of change is taking its toll on currency markets. Yield differentials matter again and that is clearly visible on EUR/USD. The spread between US and EU bond yields are pointing firmly lower and momentum on EUR/USD has clearly taken notice. We continue to suspect the corrective high was seen last week just below 1.1500, and once bears have conquered the 1.1300 handle the lows around 1.1200 will then be within their crosshairs.
Another euro pair to keep a close eye on is EUR/JPY. It was one of the weakest performers yesterday and prices closed at the low of a very bearish day. It is clinging on to the 200-day exponential moving average in hope of support, and whilst an obligatory bounce form such a technical milestone can be customary, we do not expect it to hold above it for too much longer. Bears are likely to want to fade (sell into) minor rallies into 130.20 area, and a break below 129.50 opens the door for its next leg lower in our view.
Euro explained – a guide to the euro
If we look at the four-hour chart it shows volumes rising as prices declined into key support. Although 129.64 (near the 200-day eMA) also coincides with the weekly S1 pivot. Prices are currently retracing but our bias remains bearish below the weekly pivot around 130.50, and for an eventual break below 129.50 to bring the support zone around 128.90 info focus.
How to trade with FOREX.com
Follow these easy steps to start trading with FOREX.com today:
- Open a Forex.com account, or log in if you’re already a customer.
- Search for the pair you want to trade in our award-winning platform.
- Choose your position and size, and your stop and limit levels.
- Place the trade.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.
Your form is being processed.