US 10Y bond yields creaking again

Benchmark US government bond prices have been inching higher and yields lower again, suggesting the recent improvement in US data has not made a big impact on interest rate expectations.

Benchmark US government bond prices have been inching higher and yields lower again, suggesting the recent improvement in US data has not made a big impact on interest rate expectations. If the moves can be sustained, this could potentially derail the US dollar’s rally against some of her major rival after the Dollar Index briefly broke above last year’s high yesterday. Admittedly, the euro remains a soft spot owing to the economic troubles in the Eurozone and this could keep the DXY’s downside limited. However, other currencies such as the Japanese yen and British pound, and potentially gold, could make a comeback should US bond yields fall further.

Indeed, the longer-term technical directional bias is still bearish on 10y US yields given the lower lows and lower highs on the weekly, and with the long-term bullish trend also broken.

TradingView chart of Dollar Index.  Analysed in 2020

Here are a few technical observations we have made following the recent price action:

  • Doji candle on weekly after a retracement to prior support – this could be a major bearish reversal signal
  • Some downside follow through so far this week after the above price action last week
  • Daily downtrend re-established after a brief break, potentially trapping the bulls
  • Liquidity below this year’s low at 2.344 is the main downside objective for the bears
  • Shorter-term potential support seen at 2.513, an old resistance level
  • Key resistance around 2.588-2.626 area, previously support
  • Technical bias would turn bullish in the event of a break above prior high circa 2.800

Overall, the technical indications suggest we may see weaker bond yields going forward, which could have major implications for other financial markets.

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