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.
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