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BofAML: Bond Bears And USDJPY Bulls Beware

Tyler Durden's picture




 

Treasury bears are at risk, is the ominous warning from BofAML's Technical Strategist MacNeil Curry, as bonds are on the verge of turning the near-term, and potentially medium-term, trend from bearish to bullish. USDJPY bulls should also take note as with the 3-month uptrend increasingly showing its age, a reversal in US rates could prove to be the catalyst for a USDJPY reversal lower.

 

Via BofAML,

10yr yields stall at support 

 

US 10yr Treasury yields are topping out against 3.000%/3.012% support. A daily close below 2.970%/2.965% resistance would complete a Head and Shoulders Top and confirm a near term turn in trend for 2.88% and potentially below. While the implications for the US $ in general are likely to be limited, $/¥ bulls should pay close attention.

The $/¥ uptrend is growing vulnerable to a reversal

The 3m $/¥ uptrend is increasingly vulnerable to a top and bearish reversal. The bearish daily momentum divergences and completing 5 wave advance from both Feb'12 and Oct'13 says that additional strength is limited before a top and turn. Given the strong correlation between $/¥ and US 10yr yields; a break down in yields could be the catalyst for such a reversal. See chart for key $/¥ levels.

US $ Index breakout

While a bullish turn in US Treasury yields could be seen as US $ bearish, it is unlikely to be the case this time. Friday's closing break of the 100d avg (now 80.65) says that the US $ Index has resumed its medium term uptrend after 2 months of range trading. Upside targets are seen to 82.15/82.55

Seasonals are also supportive for the US $ Index

In addition to the bullish breakout, seasonals are also very positive for the US $ Index. Since 1971 it has averaged a return of 1.02% (excluding carry) and risen 65% of the time. Given Friday's breakout and strong gains since the start of the year, this January should be no exception to the historical norm.

Summing it up...

  • US 10yr yields are at risk of a top & bullish reversal. A break of 2.970%/2.965% confirms, opening 2.88% & potentially below
  • $/JPY bulls beware. A US Treasury yield reversal could be the catalyst for a top and turn lower in $/JPY.
  • The US$ Index should remain unharmed from a Treasury turn. The bullish breakout & positive seasons point to higher prices
 

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Sun, 01/05/2014 - 16:28 | 4302259 Musashi Miyamoto
Musashi Miyamoto's picture

Watch for the Un-Taper. You heard it here first

Sun, 01/05/2014 - 16:33 | 4302261 Motorhead
Motorhead's picture

You are late to the un-taper party, dude, but nonetheless, I agree.

Un-taper, bitchez!

Sun, 01/05/2014 - 16:34 | 4302272 InjectTheVenom
InjectTheVenom's picture

Yaawwwnn ... wake me up at 6% on the 10-yr .....

Sun, 01/05/2014 - 16:40 | 4302285 Soul Glow
Soul Glow's picture

Un-Taper....sounds like a striptease.

Sun, 01/05/2014 - 16:31 | 4302264 InjectTheVenom
InjectTheVenom's picture

Interest rate normalization gonna be a beee-yaaattch mo-foes !!

Sun, 01/05/2014 - 16:33 | 4302262 wisehiney
wisehiney's picture

Oh crap! They agree with me. Back to the drawing board.

Sun, 01/05/2014 - 16:55 | 4302329 TheRideNeverEnds
TheRideNeverEnds's picture

exactly what I though; dammit, I just got long bonds and the yen last week, foiled again!  

Sun, 01/05/2014 - 16:35 | 4302274 disabledvet
disabledvet's picture

I simply don't understand the Yen so you'll have to consult Yencross and Kyle Bass on this one. Having said that I do understand batteries and with not just one but two battery technologies now being fully deployed...albeit totally under utilized...and with "solar batteries" a very possible third energy technology (we'll see how the Ford version tests out in the next couple of weeks) this has the potential to have a truly dramatic impact on global trade flows and energy production. in other words the "consumption bias" in the USA which has existed for many, many decades now could dramatically change if you're car becomes the equivalent of a "wild cat energy play" in effect powering all the electrical devices in your house. Moreover if you have a natural gas line to your house in theory this could be converted into hydrogen to power AND heat all devices using a fuel cell battery. that would mean the demand for ethanol and gasoline would drop basically to zero over night. in other words unlike lithium ion battery which is pretty complicated...the exact opposite is true with a fuel cell battery. the one DISadvantage to a fuel cell battery is that a lithium ion batter if correctly built can run quite efficiently in cold weather.

Sun, 01/05/2014 - 16:54 | 4302339 steveo77
steveo77's picture

Shark attacks in Hawaii going fully parabolic.

The radiation impact on the food chain is a big contributor, the other is that Maui is "shitted out" on the west side, meaning cesspools, injection wells in Kihei, and boats dumping raw waste off Makena/Molokini.   All that poop creates ciguatera which is a disease that makes critters go crazy and also die.

So the sharks are hungry, and crazy, and humans are no longer considered "bad meat".

http://nukeprofessional.blogspot.com/2013/12/apex-predators-in-hawaii-ar...

Sun, 01/05/2014 - 16:58 | 4302345 JamesBond
JamesBond's picture

japan is gaining in the industrial arms selling race...

JPY will strengthen against the dollar for the next two years.

auto exports are benefiting from the weaker yen at the moment; they will suffer somewhat when the reversal hits.

 

jb

Sun, 01/05/2014 - 17:12 | 4302383 vote_libertaria...
vote_libertarian_party's picture

Said another way:  "OH CRAP!!!!  WE NEED TO UNLOAD THESE BONDS TO THE BAGHOLDERS!!!!" 

Sun, 01/05/2014 - 17:25 | 4302412 The Econ Ideal
The Econ Ideal's picture

The last major dip in the USDJPY followed the crash of the Nikkei on/after May 22 highs. The Nikkei futures MACD cross was a good indicator to get out. This has not recently been confirmed for the next crack. BoAML wishful thinking contrarian play, which if they are lucky does play out. BTW, May 22 crack in USDJPY it was better to be short Treasurys rather than long and stay the course. 

Sun, 01/05/2014 - 17:31 | 4302427 Big Brother
Big Brother's picture

Every big bank has their "Stopler-esque" strategist to output recommendations to their retail side; while their prop-desk takes the opposing position.  I take contrarian positions to this charlatans.  Though clearly not a 100%, guaranteed win, they are high-probability trades.

I read this as 

SHORT ^TNX

LONG USDJPY

4% & 110.00 is inevitable.

Disclosure:

Long DTYS & USDJPY, EURJPY, and GBPJPY

 

Sun, 01/05/2014 - 17:38 | 4302471 wisehiney
wisehiney's picture

This should help consumer spending. Insurance co's trying to make up what they are losing paying granny's annuity and pensions. Low interest rates just ain't helping pension providers. That guaranteed annuity purchased in 2006 at 7% guaranteed will feel real good until aig et al collapse. 

http://www.seattlepi.com/news/texas/article/Texas-3-largest-home-insurers-plan-to-raise-rates-5113568.php

http://www.wral.com/insurers-seek-25-percent-increase-in-nc-homeowner-po...

Sun, 01/05/2014 - 19:21 | 4302790 Babaloo
Babaloo's picture

I'm pretty sure AIG already collapsed.

Sun, 01/05/2014 - 19:24 | 4302812 wisehiney
wisehiney's picture

No one to catch it this time.

Sun, 01/05/2014 - 18:32 | 4302631 dragoneyes74
dragoneyes74's picture

This is interesting.  Maybe we do get an temporary unwind of all the recent trends with the upcoming debt ceiling mess.  Here's the bottom line though: the Yen is doomed.  All the JPY pairs have significant more upside.  But with positioning this extreme and a trend already a bit mature, caution is warranted.  Position size should be small until we see if the USD/JPY 103.75 breakout will hold when the big money comes back.  If we get a pullback of any size, I think it's a gift that should be scaled into over time.  

The real question is: pullback or not, what is the currency that will crush the Yen the most over the coming years?  GBP?  USD?   

 

 

Sun, 01/05/2014 - 19:10 | 4302763 Big Brother
Big Brother's picture

I would go with the GBP or the EUR.  Obviously both are not without issue, but in the world of dirty laundary, theirs isn't as dirty as others. 

  • The UK has the greatest natural resource deficit of all developed countries, and thereby would theoretically be least affected by "Dutch Disease".  The UK's economy is almost entirely a tiertiary (service) and quaternary (information).
  • Most of their debt (public, household, corporate (read-banks)) is corportate. Which with infinite rehypothecation, the largest foreign exchange center in the world, and resource appropriation from the commonwealth of nations, this classification of debt would not be a detriment to their sovreign credit rating.

For the EUR - 

  • Their central bankers talk about wanting inflation and growth, but most members of the EURO are experiencing deflation and can do nothing about it by themselves.
  • The Japanese will continue to hedge their own currency risks by selling Yen and buying EUROs.
  • The Chinese and Russians will diversify away from the dollar by buying EUROs.
  • The Swiss will defend the 1.20000 handle with an infinite amount of Francs.

 

 

 

Sun, 01/05/2014 - 18:55 | 4302714 Spungo
Spungo's picture

Wake me up before you POMO. Don't leave me hanging on like a yo-yo. Wake me up before you POMO. I don't want to miss it when you hit that high.

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