Rising yields pressure the US30
US 10-Yr Treasury - Weekly
Source: www.tradingview.com
The US 10-Yr Treasury retreated over three weeks as its RSI normalised from an overbought condition (green shaded horizontal). However, it has found support near the 2.7% level and looks to have charted the next higher trough in its uptrend. The 10-yr yield's stochastic remains in its upper quintile (orange shaded area), suggesting that the underlying momentum remains strong. Will it chart a new higher peak remains a question?
US30 and Yield - Hourly
Source: www.tradingview.com
Yields kicked up yesterday from about noon GMT. This appreciation has placed pressure on the US30, which has pulled back. This causality is not surprising, given the current correlation between the two. The indicator at the bottom is the correlation coefficient between the US10-Year Treasury and FXCM's US30 CFD on an hourly basis. Since the beginning of June, there has been an apparent inverse relationship (green shaded horizontal), with the current reading at a decisive -0.81%.
The robust non-farm employment change on Friday supports continued contractionary policy. Market participants now focus on Friday's inflation data for further information. Moreover, the normalisation of the Fed's balance sheet is likely to keep yields supported as the money supply declines.
Russell Shor
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.
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