European Open: Yields are on the rise again

US treasury yields closed in on their multi-month highs overnight, dragging USD/JPY to a 1-year high along the way.

Charts (3)

Asian Indices:

  • Australia's ASX 200 index fell by -61.1 points (-0.9%) to close at 6,738.40
  • Japan's Nikkei 225 index has fallen by -4.06 points (-0.1%) and currently trades at 29,380.46
  • Hong Kong's Hang Seng index has risen by 286.17 points (1.01%) and currently trades at 28,624.47

UK and Europe:

  • UK's FTSE 100 futures are currently up 21 points (0.31%), the cash market is currently estimated to open at 6,757.17
  • Euro STOXX 50 futures are currently up 11 points (0.29%), the cash market is currently estimated to open at 3,893.87
  • Germany's DAX futures are currently up 49 points (0.33%), the cash market is currently estimated to open at 14,866.72

Monday US Close:

  • The Dow Jones Industrial rose 98.49 points (0.3%) to close at 33,171.37
  • The S&P 500 index fell -3.45 points (-0.09%) to close at 3,971.09
  • The Nasdaq 100 index fell -13.38 points (-0.1%) to close at 12,965.74

Will indices take note of the rising yields?

Yields may be rising, yet equity markets appear to have turned a blind eye during overnight trade. In Asia the KOSPI 200 and Nikkei 225 led the pack higher +1.2% and +1.02% respectively. The ASX 200 fell to a 5-day low in line with our bias from today’s Asian open report, although that is more likely to be down to Queensland re-entering lockdown due to rising cases in two clusters.

It was only recently that rising yields to current levels would send the Nasdaq falling over 4% in a day. At the time of writing Nasdaq futures are just -7 points lower (-0.06%), whilst S&P 500 and Dow Jones futures are up by 0.11% and 0.15% respectively. Perhaps we’ll see a more dramatic response from these indices at US open, although, being so close to month and quarter end, price action can be erratic and unpredictable anyway. Stay nimble.  

The Euro STOXX 50 and DAX closed to fresh record highs yesterday, although their daily ranges were small and both indices closed around their opening prices. In both cases our bias remains bullish above Friday’s low (the gaps) but yesterday’s indecision candles are a slight concern to that bullish case over the near-term. A break beneath yesterday’s gaps would confirm yesterday’s Doji’s as near-term reversals.

The FTSE 100 remains suppressed by its 200-week eMA and yesterday’s indecision candle (Rikshaw man Doji) underscores its hesitancy to break above this milestone level. Still, if it can muster up the strength to break its 200-day eMA then the bias remains bullish towards 6800.

 

Forex: Dollar remains firm, USD/JPY hits 1-year high

The US dollar index (DXY) touched a 4-month high yesterday and held onto the gains overnight. EUR/USD is stuck near yesterday’s low having closed below 1.1800 for its third consecutive session. With prices below its 200-day eMA and prices having already consolidate near its lows for two days then it must be tempting to bears. However, support is nearby at 1.1745 which makes the reward to risk a bit small to enter on the daily chart.

Retail sales in Japan fell for a third consecutive month, adding to calls for a sharp contraction in Q1 GDP. The Japanese yen was the weakest currency and broadly lower against its major peers which saw USD/JPY finally break above the June 2020 high.

GBP/CHF finally tested 1.3000 yesterday yet failed to hold above it. Now there are two bearish hammers at the highs which closed beneath this resistance level, then we see its potential to retrace lower from current levels. That’s not to say shorting this particular pair would be easy given the strength of its bullish trend overall. But perhaps bulls would be best to wait for a clear break above 1.3000 before loading up. 


False break on EUR/GBP?

EUR/GBP is again probing key support at 0.8533 after a (failed) break beneath it. Whilst the daily trend favours further downside eventually, yesterday’s bullish hammer which closed back within range warns of a bear-trap.

It should also be noted that yesterday’s low found support at the weekly and monthly S1 pivot levels. Given the day closed back above the breakout level then we see the potential for a counter-trend move back within its range.

  • A break above yesterday’s high assumes bullish follow-through
  • The initial target is the lows around 0.8596
  • A break beneath yesterday’s low invalidates the near-term bullish bias and assumes the dominant, bearish trend has resumed.

Commodities: Gold falls to a technical juncture

Gold has fallen to a 12-day low and trades around 1706. How prices react around the 1700 bullish hammer low is key. On one hand, bears can make their argument based on the longer-term bearish trend and channel, whilst bulls could point to how major support resides between 1776 – 1700.  Should 1700 hold as support then we may have seen the end of wave-2 retracement and wave 3 could then try to break above 1764. Conversely, a break beneath 1700 brings the 1670/76 lows into focus over the near-term.

Palladium remains in a minuscule (almost shell-shock) state since yesterday’s -5% loss. Whilst prices are holding above the 2514 breakout level, we have put this on the back burner until volatility subsides. Ultimately, we see its potential to continue its longer-term bullish trend but the magnitude of yesterday’s candle has put this on the shelf for later.

Oil prices endured a day of trading without moving over 5% (up or down). Given it trades just off its weekly high then it’s a minor victory for bulls. But we need to see a clear break above $65 to become more confident.


Up Next (Times in GMT)

You can view all the scheduled events for today using our economic calendar, and keep up to date with the latest market news and analysis here.

More from Commodities

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.