After briefly moving above 5% the US 10-year yield has retreated and is currently yielding 4.81%. Technically, there is a divergence between the 10-year yield and its RSI. This suggests that momentum may be slowing and that the yield correction may extend.
There was a bounce in the bond market yesterday which contributed to the drop in yield and one of the catalysts was a tweet by Bill Ackman, the billionaire head of Pershing Square Capital Management, saying that "There is too much risk in the world to remain short bonds at current long-term rates" and that "We covered our bond short."
Yields have been a key driver of the dollar. As such, the retreat in yields saw a retreat in FXCM's USDOLLAR basket:
FXCM's USDOLLAR basket has dropped into its bearish channel between the lower blue and red bands. Moreover, its daily RSI has dipped below 50, which is the bearish side of the indicator. The longer the RSI maintains below 50 (green rectangle), the more momentum pressure will be applied to the greenback.
If the bond market continues to bounce, and the yield continues to retrace, the USDOLLAR will continue to remain under pressure. This scenario becomes more likely if weaker US data is printed.
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.