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Falling momentum for US yields. Is it temporarily?

Carlsquare
13/09/20222 min read
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Momentum for the US 10-year Treasury yield is fading after a strong rally starting at the beginning of August. That is visualised by the falling MACD histogram marked at the bottom of the chart below.

US 10-year Treasury yield (%), one-year daily chart

2022-09-12_CS1.png
Source: Infront. Note: Past performance is not a reliable indicator of future results.

In the wake of falling momentum for the US 10-year Treasury yield, the USD has weakened against the euro.

EUR/USD (%), one-year daily chart

2022-09-12_CS2.png
Source: Infront. Note: Past performance is not a reliable indicator of future results.

However, in parallel, Fed’s Powell continues to express his intention to fight inflation, despite the risk of recession. An increase in the target rate by 75 points is expected on 21 September 2022, with a probability of 90 per cent. Interestingly, another 75-point increase is starting to sneak up on the table for the Fed November meeting – the market is currently discounting a rate hike of 75 basis points in November with a probability of 10.4 per cent. One week ago, the probability was zero.

2022-09-12_CS3.png
Source: CME Group. Note: Past performance is not a reliable indicator of future results.

Suppose the bond market continues to see an increasing probability for a 75-basis point increase in November. In that case, the weakness in the USD may be over – meaning that the purchasing power of investors holding other currencies decreases. That could, in turn, weaken commodities traded in USD, such as gold or oil.

Below is the one-year daily chart for brent oil. As can be seen, brent is under pressure, and the downside risk is quite substantial. Is the last day’s increase in the oil price an opportunity to sell?...or is the weakness in the USD only temporary?

Brent oil price (USD per barrel), one-year daily chart

2022-09-12_CS4.png
Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.
Bull and Bear Certificate
+6.42%
Brent Crude Oil Future
3x Long
BULL OLJE X3 VN2
Bid
70.04
Ask
70.17

Brent oil price (in USD per barrel), five-year weekly chart

2022-09-12_CS5.png
Source: Infront and Carlsquare. Note: Past performance is not a reliable indicator of future results.

The full name for abbreviations used in the previous text:

EMA 9: 9-day exponential moving average

Fibonacci: There are several Fibonacci lines used in technical analysis. Fibonacci numbers are a sequence of numbers in which each successive number is the sum of the two previous numbers.

MA20: 20-day moving average

MA50: 50-day moving average

MA100: 100-day moving average

MA200: 200-day moving average

MACD: Moving average convergence divergence

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