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USD JPY - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL OUTLOOK: BULLISH BASELINE With headline inflation at 8.5%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their July meeting, and continuing with QT. Despite the increased fears of a possible recession, the Fed minutes confirmed that the Fed is far away from stopping rate hikes and squashed hopes of a Jackson Hole dovish pivot. The Fed did announce a more data-dependent stance at their July policy meeting, explaining that the pace of hikes is likely to slow as rates get more restrictive and as more data becomes available. STIR markets have repriced lower to reflect this. With the Fed signalling data-dependence, the incoming growth, inflation and jobs data will be a key driver for USD price action where we expect a cyclical reaction to incoming data (good data being good and bad data being bad for the USD and US10Y). But the USD safe haven status is important to keep in mind. Even though price pulled back after the Fed’s July meeting, the still uncomfortably high inflation and Fed minutes saw a Jackson Hole Symposium Pivot pushed back and this has seen similar support for the USD like we saw from the start of the year where bonds pushed lower, and the USD gained on safe haven demand. POSSIBLE BULLISH SURPRISES With the Fed’s data-dependent messaging pushing rates lower, any incoming data that sparks further aggressive hike expectations, or comments from the FOMC that signals even more aggressive policy could trigger bullish reactions. As the cyclical outlook continues to weaken, the USD’s safe haven status still matters. Any incoming data that exacerbates fears of recession and triggers a big flush in risk assets and triggers a rush to safety should be positive for the USD. Any further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields (commodity prices, actual inflation and inflation expectations, more aggressive tightening rhetoric from Fed) could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely bad growth, inflation or jobs data is expected to trigger short-term bearish reactions in the USD. The USD is trading close to cycle highs while aggregate CFTC positioning is close to levels that previously acted as local tops. Stretched positioning could make the USD vulnerable to shortterm corrections, especially with bad US data points. With a lot still priced for the Fed, it won’t take much to disappoint on the dovish side. Any FOMC comments that suggests more concern about growth than inflation could trigger bearish reactions in the USD, but with inflation so high any major dovish pivots seem a while away. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays hawkish and cyclical concerns put pressure on risk assets. However, the data dependence stance from the Fed means we want to be mindful that lots has been priced for the USD, and as growth deteriorates, it could impact the USD negatively, even though current inflation suggests any dovish pivot seems a while away. Also, as the safe haven of choice, any further recession focused downside in risk assets or continued downside in US bonds due to sticky inflation and an aggressive Fed could continue to prove supportive for the USD. In the short-term though, with positioning in mind, and a dual-growth narrative (one being good for the USD and the other being bad for the USD) we prefer short-term catalysts that offer short-term sentiment-based trades. JPY FUNDAMENTAL OUTLOOK: BEARISH BASELINE In recent weeks, yield differentials have been the biggest negative driver for the JPY with the BoJ keeping 10-year JGB yields capped at 0.25% with yield curve control while other central banks are hiking rates aggressively. Thus, the BoJ’s reluctance to shift on policy even with inflation starting to push higher remains a negative driver for the JPY. Even though the JPY is considered a safe haven, inflows has been limited in the current bear market compared to other cycles. The reason is Japan’s current account surplus (a main reason for safe haven appeal) has deteriorated due to the rise in commodity prices. Japan imports the bulk of their commodities , so very high energy prices has added to downside. The BoJ and MoF’s reluctance to intervene to stop the rapid depreciation in the JPY in recent weeks has been noticeable. As long as they just voice their dislike but fail to act, the market will keep testing them. Having said that, US10Y and commodities have been reacting more and more negative to the current negative cyclical growth outlook, and as a result has seen big players trim their massive JPY shorts. But this past week’s push higher in yields was a friendly reminder that inflation and yield differentials remain a major downside risk for the JPY, despite the negative cyclical outlook. POSSIBLE BULLISH SURPRISES Catalyst that triggers speculation that the BoJ could drop YCC or hike rates or both (big upside surprises in inflation ) could trigger upside in JPY, which means inflation data will be important to keep on the radar. Catalysts that trigger meaningful corrections in US10Y (less hawkish Fed, faster deceleration in US inflation , faster deceleration in US growth) or meaningful bouts of risk off sentiment could trigger bullish reactions from the JPY. Any catalyst that triggers meaningful downside in key commodities like Oil (deteriorating demand outlook, ease in supply shortage) could trigger bullish JPY reactions. Any intervention from the BoJ or MoF to stop JPY depreciation (buying the JPY or giving firm and clear lines in the sand for USDJPY ) could offer decent reprieve for the JPY. POSSIBLE BEARISH SURPRISES With yield differentials playing such a huge role for the JPY, any catalysts that push US10Y higher (more aggressive Fed, further acceleration in US inflation , better-than-expected US growth data) could trigger further bearish price action for the JPY. Any catalyst that creates further upside in oil prices (further supply concerns, geopolitical tensions) poses downside risks for Japan’s current account surplus and could trigger further bearish reactions in the JPY. Further reluctance from the BoJ and MoF to address the concerning depreciation in the JPY, and further reluctance from the BoJ to pivot away from very dovish policy is a continued negative driver for the JPY to keep on the radar. If the BoJ pushes back against calls for a policy shift despite upside surprise in CPI could trigger further JPY downside. BIGGER PICTURE The fundamental outlook remains bearish for the JPY, especially after the BoJ once again stuck to the same overly dovish script at their July meeting. As long as US10Y remain elevated and the BoJ stays stubbornly dovish and no push back is made against the JPY weakness from the BoJ or MoF, the bias remains lower. But take note of positioning which means we don’t want to chase the JPY lower and bullish reactions can see outsized upside on big drops in US10Y & commodities . It also means watching incoming CPI data closely as any huge upside surprises could trigger speculation of a possible policy shift.
by thunderpips
2
DXY's delayed reaction to yieldsI had this confusing idea and I will show it to you with this confusing chart. 1. First we define the blue vertical lines. These are the drawn on the date of the peak of yield. ( Even though yields drop, dollar continues to grow. Like a delayed reaction. Unsurprisingly, yields lead DXY growth. ) 2. Then we draw fib retracements, with 1 being the DXY value at the time of yields peaking. And 0 being the bottom of the DXY jump. The peak of DXY is conveniently at 1.618. (or maybe I conveniently drew the chart such that 1.618 appears every time, to further validate myself) 3. When yields return to "normal levels" (red vertical lines), DXY dives. The location of the red vertical lines, as well as what is defined as "normal yield level" are defined by the arbitrary target of 1.618 I put. IF yields have already peaked, and if my theory is correct, DXY will reach 120, and when yields return to where they were. Even if the price target is inaccurate, the fact that DXY continues to grow after yields peak, cannot be ignored.
TVC:DXYLong
by akikostas
Dollar and treasury yields are back on the marchU.S. Treasury yields moved higher on Friday to their highest since July 21 and U.S. stock futures fell by almost 1%, along with similar losses in Europe. The yield on the benchmark 10-year Treasury note was up 8 basis points at 2.967% as the Fed indicated July meeting minutes that it would continue hiking rates until inflation slows down significantly, although the central bank could soon decrease its pace of tightening. The 10-year Treasury yields above its 100-day exponential moving average, yields may extend its strength to 3.00% mark with the dollar's rally.
TVC:US10YLong
by AlyaAkram
the stagflation paradox. higher real rates + steepen yield curvehi there, dear fellow. we've recently stumbled upon this chart, in the quest for a leading gauge for the dxy. this chart depicts a paradox. in white, US10Y-USIRYY; in orange, US10Y-US02Y. if you remember our previous idea, namely on the DXY and the yield curve spread (US10Y-US02Y), we've pointed out back then that a steepening of the yield curve would be bearish for the DXY. well, now we just compared it with our gauge for the real rates, namely US10Y-USIRYY. what happens is, as it itself is on an extreme low in the last 20y+ (i haven't checked it beyond that, and it doesn't matter), it's likely to eventually revert to the mean. by the way, that's where the fed efforts are pointing to. that on itself is DXY bullish, untill and unless other CBs beat the fed in hawkishness, which is not the case by now. the recent tandem between both curves (since feb/21), suggests they're going up together, when and if. as for the orange curve, that should be dollar (DXY) bearish; as for the white on, bullish. who wins? the white one, for as higher real rates make more sense to be dollar bullish than it makes to be dollar bearish under a steepened yield curve. why? world wide higher inflation. in short, literally, DXY has a long way to go. our estimate is 2y+ of pain for stocks and cryptos, for as high and higher DXY is risk off for SPX and BTC. thank you.
TVC:US10YShort
by greenfield_br
3
USD JPY - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL OUTLOOK: BULLISH BASELINE With headline inflation >8%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their July meeting, and continuing with Quantitative Tightening. However, as a result of increasing fears of a growth slowdown (as evidenced by recent econ data), the Fed confirmed a more data-dependent stance at their July meeting, explaining that the pace of hikes is likely to slow as rates get more restrictive and as more data becomes available. STIR markets have repriced lower to reflect this, and the USD also took a bit of a knock on the back of the policy decision. With the Fed signalling data-dependence, the incoming growth, inflation and jobs data will be a key driver for USD price action where we expect a cyclical reaction to incoming data (good data being good and bad data being bad for the USD and US10Y ). Even though high inflation saw investors shun traditional safe havens like US bonds, the price action in the past few weeks saw US yields push lower as the growth story is starting to gain more traction. That means, even though the bias for the USD remains bullish (especially as a safe haven during cyclical slowdowns), the incoming data will be the biggest driver as markets will use it to assess the timing and length of the Fed’s current hiking cycle. POSSIBLE BULLISH SURPRISES With the Fed’s data-dependent messaging pushing rates lower, any incoming data that sparks further aggressive hike expectations, or comments from the FOMC that signals even more aggressive policy could trigger bullish reactions. As the cyclical outlook continues to weaken, the USD’s safe haven status still matters. Any incoming data that exacerbates fears of recession and triggers a big flush in risk assets and triggers a rush to safety should be positive for the USD. Any further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices, rising inflation expectations and upside surprises in inflation data could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely bad growth, inflation or jobs data is expected to trigger short-term bearish reactions in the USD. The USD is trading close to cycle highs while aggregate CFTC positioning is close to levels that previously acted as local tops. Stretched positioning could make the USD vulnerable to shortterm corrections, especially with bad US data points. With a lot still priced for the Fed, it won’t take much to disappoint on the dovish side. Any FOMC comments that suggests more concern about growth than inflation could trigger bearish reactions in the USD, but with inflation so high any major dovish pivots seem a while away. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays hawkish and cyclical concerns put pressure on risk assets. However, the data dependence stance from the Fed means we want to be mindful that lots has been priced for the USD, and as growth deteriorates, it could impact the USD negatively, even though current inflation suggests any dovish pivot seems a while away. Also, as the safe haven of choice, any further recession focused downside in risk assets could continue to prove supportive for the USD. In the short-term though, with positioning in mind, and a dual-growth narrative (one being good for the USD and the other being bad for the USD) we prefer short-term catalysts that offer short-term sentiment-based trades. JPY FUNDAMENTAL OUTLOOK: BEARISH BASELINE In recent weeks, yield differentials have been the biggest negative driver for the JPY with the BoJ keeping 10-year JGB yields capped at 0.25% with yield curve control while other central banks are hiking rates aggressively. Thus, the BoJ’s reluctance to shift on policy even with inflation starting to push higher remains a negative driver for the JPY. Even though the JPY is considered a safe haven, inflows has been limited in the current bear market compared to other cycles. The reason is Japan’s current account surplus (a main reason for safe haven appeal) has deteriorated due to the rise in commodity prices. Japan imports the bulk of their commodities, so very high energy prices has added to downside. The BoJ and MoF’s reluctance to intervene to stop the rapid depreciation in the JPY in recent weeks has been noticeable. As long as they just voice their dislike but fail to act, the market will keep testing them. Having said that, US10Y and commodities have been reacting more and more negative to the current negative cyclical growth outlook, and as a result has seen big players trim their massive JPY shorts. If this continues it should continue to support the currency on any negative data surprises from the US, especially given the size of current JPY short positions. POSSIBLE BULLISH SURPRISES Catalyst that triggers speculation that the BoJ could drop YCC or hike rates or both (big upside surprises in inflation) could trigger upside in JPY, which means inflation data will be important to keep on the radar. Catalysts that trigger meaningful corrections in US10Y (less hawkish Fed, faster deceleration in US inflation, faster deceleration in US growth) or meaningful bouts of risk off sentiment could trigger bullish reactions from the JPY. Any catalyst that triggers meaningful downside in key commodities like Oil (deteriorating demand outlook, ease in supply shortage) could trigger bullish JPY reactions. Any intervention from the BoJ or MoF to stop JPY depreciation (buying the JPY or giving firm and clear lines in the sand for USDJPY) could offer decent reprieve for the JPY. POSSIBLE BEARISH SURPRISES With yield differentials playing such a huge role for the JPY, any catalysts that push US10Y higher (more aggressive Fed, further acceleration in US inflation, better-than-expected US growth data) could trigger further bearish price action for the JPY. Any catalyst that creates further upside in oil prices (further supply concerns, geopolitical tensions) poses downside risks for Japan’s current account surplus and could trigger further bearish reactions in the JPY. Further reluctance from the BoJ and MoF to address the concerning depreciation in the JPY, and further reluctance from the BoJ to pivot away from very dovish policy is a continued negative driver for the JPY to keep on the radar. If the BoJ pushes back against calls for a policy shift despite upside surprise in CPI could trigger further JPY downside. BIGGER PICTURE The fundamental outlook remains bearish for the JPY, especially after the BoJ once again stuck to the same overly dovish script at their July meeting. As long as US10Y remain elevated and the BoJ stays stubbornly dovish and no push back is made against the JPY weakness from the BoJ or MoF, the biasremains lower. But take note of positioning which means we don’t want to chase the JPY lower and bullish reactions can see outsized upside on big drops in US10Y & commodities. It also means watching incoming CPI data closely as any huge upside surprises could trigger speculation of a possible policy shift.
by thunderpips
1
USD JPY - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL OUTLOOK: BULLISH BASELINE With headline inflation >9%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their July meeting, and continuing with Quantitative Tightening. However, as a result of increasing fears of a growth slowdown (as evidenced by recent econ data), the Fed confirmed a more data-dependent stance at their July meeting, explaining that the pace of hikes is likely to slow as rates get more restrictive and as more data becomes available. STIR markets have repriced lower to reflect this, and the USD also took a bit of a knock on the back of the policy decision. With the Fed signalling data-dependence, the incoming growth, inflation and jobs data will be a key driver for USD price action where we expect a cyclical reaction to incoming data (good data being good and bad data being bad for the USD). Even though high inflation saw investors shun traditional safe havens like US bonds, the price action in the past few weeks saw US yields push lower as the growth story is starting to matter mor. That means, even though the bias for the US Dollar remains bullish (especially as a safe haven during cyclical slowdowns), the incoming data will be the biggest driver as markets will use it to assess the timing and length of the Fed’s current hiking cycle. POSSIBLE BULLISH SURPRISES With the Fed’s data-dependent messaging pushing rates lower, any incoming data that sparks further aggressive hike expectations, or comments from the FOMC that signals even more aggressive policy could trigger bullish reactions. As the cyclical outlook continues to weaken, the USD’s safe haven status still matters. Any incoming data that exacerbates fears of recession and triggers a big flush in risk assets and triggers a rush to safety should be positive for the USD. Any further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices, rising inflation expectations and upside surprises in inflation data could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES With the Fed signalling a data dependent policy stance, we expect a cyclical reaction from the USD with incoming US data. Thus, extremely bad growth, inflation or jobs data is expected to trigger short-term bearish reactions in the USD. The USD is trading close to cycle highs while aggregate CFTC positioning is close to levels that previously acted as local tops. Stretched positioning could make the USD vulnerable to shortterm corrections, especially with bad US data points. With a lot still priced for the Fed, it won’t take much to disappoint on the dovish side. Any FOMC comments that suggests more concern about growth than inflation could trigger bearish reactions in the USD, but with inflation so high any major dovish pivots seem a while away. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays hawkish and cyclical concerns put pressure on risk assets. However, the data dependence stance from the Fed means we want to be mindful that lots has been priced for the USD, and as growth deteriorates, it should impact the USD negatively, even though current inflation suggests any dovish pivot seems a while away. Also, as the safe haven of choice, any further recession focused downside in risk assets could continue to prove supportive for the USD. In the short-term though, with positioning in mind, and a dual-growth narrative (one being good for the USD and the other being bad for the USD) we prefer short-term catalysts that offer short-term sentiment-based trades. JPY FUNDAMENTAL OUTLOOK: BEARISH BASELINE In recent weeks, yield differentials have been the biggest negative driver for the JPY with the BoJ keeping 10-year JGB yields capped at 0.25% with yield curve control while other central banks are hiking rates aggressively. Thus, the BoJ’s reluctance to shift on policy even with inflation starting to push higher remains a negative driver for the JPY. Even though the JPY is considered a safe haven, inflows has been limited in the current bear market compared to other cycles. The reason is Japan’s current account surplus (a main reason for safe haven appeal) has deteriorated due to the rise in commodity prices. Japan imports the bulk of their commodities , so very high energy prices has added to downside. The BoJ and MoF’s reluctance to intervene to stop the rapid depreciation in the JPY in recent weeks has been noticeable. As long as they just voice their dislike but fail to act, the market will keep testing them. Having said that, US10Y and commodities have been reacting more and more negative to the current negative cyclical growth outlook, and as a result has seen big players trim their massive JPY shorts. If this continues it should continue to support the currency on any negative data surprises from the US, especially given the size of current JPY short positions. POSSIBLE BULLISH SURPRISES Catalyst that triggers speculation that the BoJ could drop YCC or hike rates or both (big upside surprises in inflation ) could trigger upside in JPY, which means inflation data will be important to keep on the radar. Catalysts that trigger meaningful corrections in US10Y (less hawkish Fed, faster deceleration in US inflation , faster deceleration in US growth) or meaningful bouts of risk off sentiment could trigger bullish reactions from the JPY. Any catalyst that triggers meaningful downside in key commodities like Oil (deteriorating demand outlook, ease in supply shortage) could trigger bullish JPY reactions. Any intervention from the BoJ or MoF to stop JPY depreciation (buying the JPY or giving firm and clear lines in the sand for USDJPY ) could offer decent reprieve for the JPY. POSSIBLE BEARISH SURPRISES With yield differentials playing such a huge role for the JPY, any catalysts that push US10Y higher (more aggressive Fed, further acceleration in US inflation , better-than-expected US growth data) could trigger further bearish price action for the JPY. Any catalyst that creates further upside in oil prices (further supply concerns, geopolitical tensions) poses downside risks for Japan’s current account surplus and could trigger further bearish reactions in the JPY. Further reluctance from the BoJ and MoF to address the concerning depreciation in the JPY, and further reluctance from the BoJ to pivot away from very dovish policy is a continued negative driver for the JPY to keep on the radar. If the BoJ pushes back against calls for a policy shift despite upside surprise in CPI could trigger further JPY downside. BIGGER PICTURE The fundamental outlook remains bearish for the JPY, especially after the BoJ once again stuck to the same overly dovish script at their July meeting. As long as US10Y gains ground and as long as the BoJ stays stubbornly dovish and no push back is made against the JPY weakness from the BoJ or MoF, the bias remains lower. But take note of positioning which means we don’t want to chase the JPY lower and bullish reactions can see outsized upside on big drops in US10Y & commodities . It also means watching incoming CPI data closely as any huge upside surprises could trigger speculation of a possible policy shift.
by thunderpips
1
Expectations for September's FOMCWhat do the markets care about this week? We have another CPI print on Wednesday, which is highly anticipated. We are in a period of nasty stagflation and the Fed is caught in a difficult position. They want to raise rates further, but the issue is that our cause of inflation seems to be on the supply chain side. Interest rates will do little to combat this. The NFP numbers Friday were pretty strong, so their case is strengthened to raise by at least 50bps in September, at the next FOMC. It will be almost a certainty if CPI comes in hot. Note that GDP came in contractionary for two quarters in a row, which is the definition most use for a recession. This stands somewhat at odds with the strong NFP numbers, which could be a seasonal fluke. If the data continues to indicate that we are in a recession, the Fed will eventually be forced to lower rates again. The markets seem to be weighing this reality before rallying with conviction.
FRED:FEDFUNDSLong
by quantguy
2
S&P vs UST YieldsYields are going crazy right now. Everything seems like a disaster. Oddly enough, when these particular yields invert (gray boxes), the 10/2, it is historically not the best time to go short, but rather you would have benefited if you had shorted AFTER yields uninverted above 1.0(red dots). Now, okay, maybe this time is different, a ratio of 0.87 isn't exactly sane at this point and maybe the whole thing comes crashing down. It's also true that about a third of this chart represented a fundamentally bullish and arguably much more healthy market, and this is true, we could have samples that don't exactly reflect current conditions. What I'm not so certain about is the idea that the market being bearish or bullish is somehow a barometer of what's going to happen next. At the end of the day, monetary policy rules market prices and perhaps this can be taken as sign that perhaps we don't *really* know what's going on behind the scenes, which strings are being pulled, and how hard. The market is not the economy. The FED has a trading desk at the NY Stock Exchange. Let us ask this question: if it is not absolutely necessary in their eyes to have such a trading desk, why would it exist? Could it be the case that it's simply there and yet they aren't using it? I think that is the less probable scenario. Take it as you will. Considering the sharp cataclysm of yield inversion, I'm not sure this could constitute trading advice, but I thought it was interesting, as it could be considered bullish evidence for a "last rally" into a mammoth sized selloff. What do you think? Still bearish? Bullish all the way? Even more confused now!? Have I gone completely crazy?? Let me know! Thanks for taking a look, take care, and don't forget to hedge your bets.
TVC:US10YLong
by fringe_chartist
6
Employment Data Hammers BondsBonds crept up but are facing resistance. After ZN tested highs at 121'28, and retraced, it started to establish value between 119'23 and 121'00. The latter has provided prohibitive resistance, as we have discussed this week, and we have seen a rejection, continuing the sideways correction. We saw a wick down to 119'23, where we found support, at first, but we subsequently broke through to the vacuum zone below. This follows Non Farm Payrolls coming in at a surprise beat, with unemployment at 3.5%. Expect support at 119'01.
CBOT:ZN1!Short
by quantguy
Update on long duration bondsHello everybody! I wanted to make a quick update on where I think the 10y and 30y bonds will be headed in the next few months, as in the past, I've been talking quite a bit about deflation and a recession being close. We have seen TLT rise significantly, yet I think there is more upside. In the short term, I can see a further pullback, but in my honest opinion, the drop over the last two days was caused mainly by Pelosi visiting Taiwan and bonds getting overbought on lower timeframes. The 30y yields were rejected at the monthly pivot, while the 10y yields bounced at support and were denied at resistance. Yields are still in a short-term bearish trend, and there is no confirmation of a reversal yet, although the trend might have changed. It all depends on the situation between China and the US, as the more the tensions between those countries increase, the higher inflation will be, and therefore the higher rates will be. If China starts aggressively selling US bonds, this could create chaos in the funding markets. If the US starts banning Chinese imports or exports, the US bond market could explode, and yields go to the moon. This would force the Fed to step in and do unlimited QE / yield curve control. Essentially we are stuck in a scenario of mutually assured destruction here, and there is no way either one will come out as a winner in the short term. I believe that we are in a deflationary/disinflationary period, which could be disturbed at any moment if China invades Taiwan. The Russia/Ukraine war pushed inflation higher at a time when inflation was about to start slowing down, and a China/Taiwan war could push inflation higher at a time when inflation was about to slow down. TLT could quickly reach 125-135 in the next few months. However, I don't believe bond yields are going negative soon. It will be challenging for the market to have negative nominal yields when inflation is so high and at a time when the Fed might be forced to intervene and do YCC.
NASDAQ:TLT
by BitcoinMacro
USD JPY - FUNDAMENTAL DRIVERSUSD FUNDAMENTAL OUTLOOK: BULLISH BASELINE Hawkish Fed policy remains a key driver for Dollar strength. With headline inflation >9%, the Fed has been pressured to tighten policy aggressively, hiking rates by 75bsp at their June meeting, and continuing with Quantitative Tightening. However, as a result of increasing fears of a growth slowdown (as evidenced by recent econ data), STIR markets have repriced lower, and now expects a terminal rate of 3.5% (versus >4% before the June FOMC meeting). Even though lower STIR pricing should be negative for the USD, the growth concerns has sparked further risk off concerns and have seen safe haven flows into the USD. The USD is usually inversely correlated to the global economy and trade, appreciating when growth & inflation slows and depreciates when growth & inflation accelerates. Further expectations of a cyclical slowdown and continued tight monetary policy expectations has seen investors shun risk assets and even bonds (usually considered a safe haven), and the USD has been a key benefactor of the rush to safety in recent weeks. The current high inflation has meant that bonds have not been sought as a safe haven with a strong stock-to-bond correlation, and this has caused big bond outflows. With bonds not fulfilling its usual save haven role the USD has been the haven of choice. The bias remains bullish , but with stretched tactical and CFTC positioning we don’t want to chase the USD higher right now. POSSIBLE BULLISH SURPRISES As aggressive Fed policy has been supporting the USD, any incoming data that sparks further aggressive hike expectations, or comments from the FOMC that signals even more aggressive policy could trigger bullish reactions. As the cyclical outlook continues to weaken, the USD’s safe haven status matters. Any incoming data that exacerbates fears of recession and triggers a big flush in risk assets and triggers a rush to safety should be positive for the USD. Further outflows in US bonds means more USD safe haven appeal. So, watching key triggers for further upside in bond yields like rising commodity prices, rising inflation expectations and upside surprises in inflation data could also trigger further USD bullish reactions. POSSIBLE BEARISH SURPRISES Even though the USD has been trading like a safe haven, the worse growth data continues to get, the higher the likelihood of a ‘Fed Put’ in the months ahead. Thus, extremely bad growth data could trigger short-term bearish reactions in the USD. The USD is trading close to cycle highs while aggregate CFTC positioning is close to prior highs which acted as local tops. Thus, stretched positioning could make the USD vulnerable to short-term mean reversion, but finding strong enough bearish catalysts has been tricky recently. With a lot already priced for the Fed, it won’t take much to disappoint on the dovish side. Any FOMC comments that suggests more concern about the economy than inflation could trigger bearish reactions in the USD, but with inflation so high any major dovish pivots seem unlikely for now. BIGGER PICTURE The fundamental outlook for the USD remains bullish as long as the Fed stays aggressive and cyclical concerns put pressure on risk assets. But we want to be mindful that lots has been priced for the USD, and as growth deteriorates, it could start to weigh on the USD if markets start pricing in a ‘Fed Put’, even though current inflation suggests any dovish pivot seems a while away. Also, as the safe haven of choice any further recession focused downside in risk assets could continue to prove supportive for the USD. In the short-term though, with positioning in mind, we prefer much deeper pullbacks for new med-term USD longs and would look for short-term catalysts that offer short-term bearish sentiment-based trades. JPY FUNDAMENTAL OUTLOOK: BEARISH BASELINE The Yen has seen a lot of depreciation this year driven by very negative fundamentals. Yield differentials has by far had the biggest negative impact. With other major central banks starting aggressive hiking cycles, it has lifted yields quite dramatically, which has seen yields like US10Y push considerably higher than 10-year Japanese yields capped at 0.25% by yield curve control. That means dovish monetary policy remains a key negative driver. Despite inflation starting to push higher in Japan, and despite the lessons from other central banks, the BoJ once again stayed very dovish at their July meeting. Even though the JPY is considered a safe haven, inflows has been limited compared to other cycles. The reason is Japan’s current account surplus (a main reason for safe haven appeal) has deteriorated due to the rise in commodity prices. Japan imports the bulk of their commodities , so very high energy prices has added to downside. The BoJ and MoF’s reluctance to intervene to stop the rapid depreciation in the JPY in recent weeks has been noticeable. As long as they just voice their dislike but fail to act, the market will keep testing them. Having said that, if US10Y and commodities start reacting more negatively to the currency negative cyclical growth outlook it could ease a lot of the JPY’s pressure and given positioning could see some sizeable upside in the short-term. POSSIBLE BULLISH SURPRISES Catalyst that triggers speculation that the BoJ could drop YCC or hike rates or both (big upside surprises in inflation ) could trigger upside in JPY, which means inflation data will be important to keep on the radar. Catalysts that trigger meaningful corrections in US10Y (less hawkish Fed, faster deceleration in US inflation , faster deceleration in US growth) or meaningful bouts of risk off sentiment could trigger bullish reactions from the JPY. Any catalyst that triggers meaningful downside in key commodities like Oil (deteriorating demand outlook, ease in supply shortage) could trigger bullish JPY reactions. Any intervention from the BoJ or MoF to stop JPY depreciation (buying the JPY or giving firm and clear lines in the sand for USDJPY ) could offer decent reprieve for the JPY. POSSIBLE BEARISH SURPRISES With yield differentials playing such a huge role for the JPY, any catalysts that push US10Y higher (more aggressive Fed, further acceleration in US inflation , better-than-expected US growth data) could trigger further bearish price action for the JPY. Any catalyst that creates further upside in oil prices (further supply concerns, geopolitical tensions) poses downside risks for Japan’s current account surplus and could trigger further bearish reactions in the JPY. Further reluctance from the BoJ and MoF to address the concerning depreciation in the JPY, and further reluctance from the BoJ to pivot away from very dovish policy is a continued negative driver for the JPY to keep on the radar. If the BoJ pushes back against calls for a policy shift despite upside surprise in CPI could trigger further JPY downside. BIGGER PICTURE The fundamental outlook remains bearish for the JPY, especially after the BoJ once again stuck to the same overly dovish script at their July meeting. As long as US10Y gains ground and as long as the BoJ stays stubbornly dovish and no push back is made against the JPY weakness from the BoJ or MoF, the bias remains lower. But take note of positioning which means we don’t want to chase the JPY lower and bullish reactions can see outsized upside on big drops in US10Y & commodities . It also means watching incoming CPI data closely as any huge upside surprises could trigger speculation of a possible policy shift.
by thunderpips
US10Y Inflation has peaked according to the bond yieldsThis is a critical update on the U.S. Government Bonds 10YR Yield (US10Y) as it has formed a Head and Shoulders (H&S) pattern. This is a technically bearish formation that we typically see on market tops with a reversal following. It gets even stronger considering the fact that the Head of the formation hit (and got rejected on) the Higher Highs (top) trend-line of the Megaphone pattern that the market has been trading is since 2013. There is however a possibility of not dropping to a correction before one last test of the Higher Highs as it happened both on mid 2018 and the September 2013 H&S patterns. As a result, we should approach this in terms of Resistance and Support break-outs. Above the Resistance, expect one last Higher Highs test, below the Support expect a plunge towards the 1D MA50 (blue trend-line) and the 1D MA200 (orange trend-line). But why is this US10Y top formation pattern so important and what does it have to do with the Inflation Rate (red trend-line)? Well as you see within this 9 period price action, the two symbols are very correlated. In fact, every time the US10Y hit the top of its Megaphone pattern, Inflation peaked and started to follow the US10Y lower on its correction. As a result we can say that this is the first indication we've had in a long time that the raging inflation that started in May 2020, may finally be getting under control. If so, this could be the ideal time to get back into stock buying as early as possible. -------------------------------------------------------------------------------------------------------- ** Please support this idea with your likes and comments, it is the best way to keep it relevant and support me. ** --------------------------------------------------------------------------------------------------------
TVC:US10Y
by TradingShot
3
📊US10Y: probable fall📊 The yield on 10-year US bonds has increased by 105% since February of this year. During this time, market participants have paid special attention to the level of 2.74%, that currently acts as the main support. The current trend towards the strengthening of the US dollar would continue to put pressure on the yield on US 10-year bonds and on the economy as a whole. The spread between 2-year and 10-year bonds adds more fuel to the fire. The yield on 2-year bonds is higher than on 10-year bonds: This graph shows clear signs of a recession, which is no longer in doubt. All signs of the deepest crisis on the face. ☝️ It is necessary to remember: 🔴 In a favorable economic situation, the yield curve has a convex shape, namely, short rates are lower than long ones, that reflects the positive economic expectations of the market❗️ 🔴 Inversion - when short is higher than long - this is a signal of an impending recession, but this type usually does not last long❗️ 🔴 A flat curve indicates that the market sees hopeless stagnation, which is what we are actually seeing now❗️ Technical analysis speaks more in favor of sales than longs: the right shoulder of the "head and shoulders" reversal pattern is being formed, the base of this model is just the same at the level of 2.74% mentioned earlier. The final moment in this "sell history" is the breaking of the Moving Average down, which indicates the beginning of at least a downward correction. Prospects for downward movement are at the level of 2.39%. In any case, an alternative scenario assumes a pause in growth, but a downward correction is more likely, that may be less than the declared movement according to the main scenario. -------------------------- Thanks for support, subscribe and share your ideas here 👇 --------------------------
TVC:US10Y
by Market-Mentor
DXY and US10Y have likely topped out in the near termBased on fundamentals, 1. Recession scare may cause FED to stop hiking interest rates rapidly which has negative effect on Dollar. 2. US 10 Year Bond Yields (US10Y) have also topped out in near term.. Based on technical patterns, we see 1. Double top with negative RSI divergence. See BTCUSD idea which brought bitcoin from 69000$ to 30000$ in related idea linked below. 2. We have a bearish pennant in play now 3. High Correlation with US10Y and similar chart formation as seen below.
TVC:DXYShort
by shivam94_007
US 10-year rate. Elliott wave possibilitiesThe US 10-year yield has pulled back from 3.50% to 2.75%, which is a sizeable drop by any stretch of imagination. The Fed has clearly said its current focus is on price stability and with yesterday's employment numbers, there is still little reason to believe that fears of a so-called slowdown, or even worse - a recession, are showing up in high frequency data that the central bank is using, atleast for now (or they have the data, but because of political pressures, continue to focus on containing inflation). The vertical drop in commodities has been puzzling no doubt; in fact the descent has been so quick that most people are aligning towards the fact that Fed forward guidance of more hikes (it remains to be seen whether existing measures of tightening policy are having the desired effect) are showing signs of demand destruction. I think for the Fed to acknowledge that a recession is a bigger worry than growth (at a certain point of time in the future), they would like to see a consistently southward CPI print which shows credible signs of not being sticky on the downside. For now, I believe they are simply taking back all that they made available in terms of additional QE to pull the world economy out of the Covid led crash. Tactically, the visit to 2.75% was fleeting -- that was a key support level, so the market comfortably vaulted past 3% on employment gains that were more than expected. These moves have now resulted in the market dangling at a critical juncture which I will try to address via the three best Elliott wave counts I have conjured up (the right to be wrong is exclusively mine, and so is the right to adapt quickly to what the market might be doing regardless of what I think it should do) given the presently available evidence. All three counts start from the July 2021 lows -- the count from the 2020 crash lows of 0.34% has not been used for the sake of this analysis (which suggests the bull market in yields has much longer and higher to go) but that's a separate discussion altogether. Primary Count: Long term trend in yields higher and is very much intact, but more sideways churn is expected within a RUNNING TRIANGLE before a surge: Requirement: 2.75% must hold for this to be valid labelling Alternate count #1: Long term higher, but one dip below 2.75% is needed to meet the minimum requirements for w((4)) to end Requirement: One more dip before a larger degree 5th wave targets 3.50% and higher; 2.75% can be broken or at the least, retested Link: Alternate count # 2: More aggressive count that suggests higher immediately, longer-term higher yields play Requirement: 2.75% cannot be broken from here, not even by a tick as per the rules of the wave principle for an impulse Link: Conclusion: Regardless of which wave count is in play - we will know that as we have more information appearing from the right of the chart, the impulse up in yields is anything but done. Perhaps, inflation will remain sticky longer than the consensus view is. -- Guest Contributor at the @CMTAssociation
TVC:US10Y
by CMT_Association
12
Silver underlying support, wave count, and target of $34+Thanks for viewing, Big fan of silver as a way to gain leverage over an increasing gold price. So where to we sit currently? - After a huge (~+150%) run-up From March to mid 2020 (depending on the chart source - some charts (like this one put the local high at Feb '21) silver entered a period of mostly sideways consolidation. - The goldsilver ratio has swung dramatically, from over 120:1 in March 2020 to a low of 62.5 in Feb '21 and since then has had a mild up-trend and now sits at around 72:1. Of late, silver has performed unfavourably versus gold. - The US Fed rate (which is updated tomorrow) currently sits at 0.25% - unchanged since March '20 (investing dot com forecasts no change at that next meeting). - US monthly Inflation numbers (depending on the source) indicates inflation on the rise (fred.stlouisfed.org) Which will mean that low-yielding long-term government debt will stay neutral or below inflation and possibly move to a even greater negative real yield (Presently 1.3% US10y yield less 5% (5% taken from investing dot com) inflation is presently a -3.7% real yield)). If you take the CPI numbers (fred.stlouisfed.org) the real yield is almost exactly ZERO - not negative, but not exactly attractive (and also not protective to the holders in the eventuality of continued rising inflation) - US Federal debt (on balance sheet anyway - off balance (or "unfunded") sheet debt is around 5 times higher) rose 21% since the start of 2020. I don't think it is a controversial statement to say that this level of debt will be a significant future challenge to service unless interest rates stay depressed medium to long-term and the principal is repaid in significantly depreciated currency). Ok, there is more, but the general case for silver remains intact and the outlook for gold and silver remains medium to long-term bullish. So, what is next? I put a possible wave count for silver and some possible support levels. I especially pay attention to areas where a number of different areas of support converge; e.g. peak or trough support, fib extension / retracement levels, trend-line etc. So we seem to have one of those levels approaching with; - The 0.382 for the full 2020 move seeming to provide strong support, - Fib extensions almost perfectly hit the 1.618 before bouncing three times now, - Lower trend-line support isn't too far below current prices at around 23 (this isn't a strong trend-line as there are only two points - but the larger price trend forms a generally symmetrical triangle with around 6 points of contact), - Seemingly strong level support sits at 23.781 and is coincident with other smaller areas of support, - I don't expect we will see prices below $24. The only reason why I don't point to Elliot Wave as indicating a local bottom at the current swing low is that I see another small wave down to end the current correction. Importantly, I am starting to see some RSI bullish divergence on the 4hrly - which is also evident on the daily chart. I definitely pay attention when the RSI starts to form higher lows while the price heads lower. It's a good time to think about getting in or out - or at least scaling in / out / taking profit. At a minimum it shows a slowing in the price momentum. So, to continue my Memoirs :) I am not looking to the next Fed rate decision - unless they suddenly hike it to above 3% (which is basically impossible now if the US is ever to service is current (and fast expanding) public debt) - the long-term case for gold and silver remains in place. I posted yesterday that I can see, one of the possible future scenarios being $2140 gold in the near-term (an 18.5% rise) and silver could conservatively be expected to double that % rise which would put it around $34/oz. Best of luck everyone, and protect those funds.
TVC:SILVERLong
by flyinkiwi10
3