Top Story

Coronavirus Headlines Push 10-Year Yields to New All Time Lows, Tracking USD/JPY

U.S. CDC SAYS NOW IS THE TIME FOR BUSINESSES, HOPSTIALS, COMMUNITIES AND SCHOOLS TO BEGIN PREPARING TO RESPOND TO CORONAVIRUS – TELEBRIEFING

U.S. CDC SAYS WANTS TO PREPARE AMERICAN PUBLIC FOR POSSIBILITY THAT THEIR LIVES WILL BE DISRUPTED AS CORONAVIRUS SPREADS IN U.S. – TELEBRIEFING

US CDC: “VERY STRONG CHANCE OF AN EXTREMELY SERIOUS OUTBREAK OF THE CORONAVIRUS HERE IN THE UNITED STATES.”

…….and with those comments, the selloff on Wall Street continues.   The S&P 500 is down an additional 3.25% and the Dow Jones is down an additional 3.1% from yesterday.  Of course, because the stock markets are selling off from all time highs, that means the dips have ALWAYS been bought at some point.  But that is for another day.

Today, 10-Year government bond yields have made all time new lows, trading as low as 1.303% vs the previous low in July 2016 at 1.321%. 

Source: Tradingview, FOREX.com

The flight to safety into bonds was in play again today as bonds were bought while stocks were being sold:

  • Stocks and bonds have an inverse relationship with each other.  When stocks move lower, bonds traditionally move higher. 
  • Bonds and yields are inversely related.  As bonds move higher, yields move lower. 
  • As a result, when stocks move lower, yields move lower as well.

Taking aa conservative approach to the pennant formation in 10-year yields, the target is near .67%.  If one chooses to look for a more aggressive target, he or she can extend the length of the flagpole towards 3.25%, then take the flagpole and add it to the breakdown out of the pennant.  However, before the target is support at the 127.2% and 1.618% Fibonacci extensions near 1.281% and 1.096%, respectively.  In addition, watch the RSI, as it has moved into oversold territory.  This indicates that if price is to reach the target, there will most likely be a bounce first.

Source: Tradingview, FOREX.com

When we overlay USD/JPY on the 10-year yields, we can see that, for the most part, these 2 assets are correlated.  When USD/JPY moves lower, 10-year yields move lower.  We can see this on a 240-minute time frame, with the inexplicit runup in USD/JPY early last week being the exception (blue line).  The scale of the left side show price for USD/JPY, which is currently near 110.00.  This big round number acts as psychological support.   Note that on the shorter-term timeframe, yields and the RSI are diverging.  If yields do bounce soon, USD/JPY sellers will be looking to enter the market near yesterdays support (now acting as resistance) near 110.30. 

Source: Tradingview, FOREX.com

On a 240-minute timeframe, USD/JPY has put in a doji candle, a candle of indecision.  This may also indicate that the pair is ready for a bounce (and a bond pullback).  Again, expect resistance and sellers at 110.30.

Source: Tradingview, FOREX.com

10-year yields are another asset class one can watch when trading USD/JPY.  Because they are correlated, if we see a bounce in yields, we can expect a possible bounce in USD/JPY.


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.

The markets are moving. Stop missing out.

OPEN AN ACCOUNT