Trading The Technicals: Bond Bears Beware Of "Defensive Posture"

Tyler Durden's picture

The combination of impulsive gains and corrective weakness from the late October lows at 78.99, repeated failure to hold a break of 79.95/79.82 area support and now bullish seasonals (January is the strongest month of the year for the US $ Index) all tell BofAML's Macneil Curry that the US Dollar Index is headed higher. While he remains a long-term Treasury bear, Curry warns bond bears to take a wait-and-see approach and fears a "defensive posture" may correct bond yields and stock prices lower.

 

Via BofAML,

Bullish US $ Index as 2014 starts.

We remain US $ Index bulls.

The combination of impulsive gains and corrective weakness from the late October lows at 78.99, repeated failure to hold a break of 79.95/79.82 area support and now bullish seasonals (January is the strongest month of the year for the US $ Index) all say the US $ Index is headed higher.

A closing break of 80.66/080.83 confirms (100d and Dec-20 high), opening the Nov highs at 81.48, ahead of 82.67 and beyond. Further supportive of a higher US $ would be a £/$ close below 1.6474 (Dec-31 low), which would result in a Bearish Engulfing Candle, and a €/$ close below the Dec-20 low of 1.3625, which would complete an irregular Double Top formation.

US Treasury yields trying to break out, but watch the S&P500

We have been and remain long-term US Treasury bears, with 10yr yields targeting 3.17%/3.30% and, eventually, 3.45%/3.50%. HOWEVER, right here, with 10yr yields struggling to maintain the break of 3.00%/3.012% support (61.8% of the Apr’10/Jul’12 decline and early Sept. highs), we are NEUTRAL, taking a wait-and-see approach. Indeed, the risk for a near-term and, potentially, medium-term yield top and turn lower is quite high. Watch 2.970%/2.965% resistance AND ESH4 support at 1833.50/1824.50. Through these levels would say that 10yr yields have formed a near-term top and bullish turn in trend, as investors adopt a more defensive posture and ESH4 enters into a near-term correction within the larger bull trend.

Bigger picture, ESH4 bears need a break of 1768.25/1754 to gain control.

Gold weakness to continue

Despite the rally in the US $, gold has proven to be very resilient. However, stay bearish against 1251/1270. Against here, the downtrend remains on firm footing for a test and break of the Jun lows at 1180, opening LONG-TERM PIVOTAL SUPPORT BETWEEN 1127/1087