It was a volatile trading period yesterday, with an abysmal Empire state manufacturing survey initially keeping markets in check before traders brushed that aside and reacted to Fed Waller’s remarks here. At the end of the day, yields settled higher and that underpinned the dollar while weighing on risk sentiment. It was a squeeze of sorts across the board but broader markets could perhaps take in some comfort that bonds did not cross a key line in trading yesterday:
US Treasury 10-year yields (%) daily chart
10-year yields in the US continue to hold just below its 200-day moving average (blue line) at 4.081% and the 23.6 Fib retracement level at at 4.075%, at least for the time being. That is still helping to limit the squeeze in broader markets that we saw yesterday.
And so, if bond traders have reason to chase a stronger selloff i.e. higher yields, the moves yesterday may just be an appetiser for things to come in the short-term. The US retail sales data today might just be a catalyst for such a move, so keep a close watch on that.
Looking to other markets, USD/JPY itself is now running up against a test of its 100-day moving average at 147.41 while EUR/USD is also closing in on a test of its 200-day moving average at 1.0846. Gold also tumbled amid a break of key near-term levels and is now inching towards a test of key trendline support near $2,017. And in the equities space, are we looking at a potential double-top for the S&P 500 near 4,800?
There is much on the line for traders this week but the bond market is the one holding all the cards.