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