Notifications Bell

All eyes are on U.S. Treasury Bonds – Market Overview

All eyes are on U.S. Treasury Bonds – Market Overview

Yesterday, yields of U.S. Treasury Bonds hit new highs, with the 10-year benchmark surpassing the 1.60% mark. Today's session saw it fall to 1.53%.

In this sense, it will be crucial to follow the auctions that will take place today with a 3-year bond auction and especially tomorrow with a 10-year bond auction.

Suppose the demand for these auctions is not high enough to push down the yields, and they continue on this trend. In that case, the market could return to the dynamics experienced yesterday with downward pressure on stock indices and a strengthening of the U.S. Dollar.

Meanwhile, the markets experienced corrections from yesterday's movements.

The U.S. Dollar strengthened, and its price against the euro exceeded the 1.1900 zone after having touched a minimum of 1.1830 yesterday.

From a technical analysis perspective, EUR/USD broke lower after trading below the 100-day SMA line, currently located at 1.2030, but rebounded. The daily RSI reached the 30 zone, a level that had not been seen since March 2020. The rebound also comes from a wide price concentration zone between 1.1750 and 1.1870.

Therefore, it could perhaps be considered a purely technical correction without the fundamental data has changed substantially. There are fundamental causes that might generate pressure on the euro, such as the ultra-expansive monetary policy of the European Central Bank, which not only remains in place but could grow stronger if the outflows of European bonds that we have witnessed in previous days should intensify. Additionally, there have been talks in the market about the ECB increasing the pace of asset purchases, which has not been officially confirmed.

On the other hand, today, the fourth quarter's GDP data for the Euro Area was published, showing a year-on-year fall of 4.9%, somewhat better than the expected -5% figure.

Together with other fundamental factors, this data contributed to a rise in European Stock Indices, which perform better than the North American ones, breaking the correlation that they have traditionally experienced in recent months.

The fact that inflationary expectations in Europe are not as high as those in the United States and that the levels of European bonds yields have not experienced such high increases, together with expectations of a recovery in the economy due to the administration of vaccines and implementation of the Next Generation aid package are the main reasons for this behaviour.

Elsewhere in Germany, DAX has reached a new all-time high in the 14452 zone and technically does not find any benchmarks that can be considered resistance with RSI levels relatively below overbought levels.

Sources: ForexLive.com, Investing.com.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.

The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

The research analyst is not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.

The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.