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Technical Update - US and EU 10-year yields higher but signs of trend exhaustion on the futures. Which one is right?
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: US 10-year Treasury yields testing previous peak. Could move to 4.48. Treasury Future showing signs of trend exhaustion. Which one will be right?
EU/German 10-year yields slowly grinding higher towards 277 as the Bund future is making new low
US 10-year Treasury yields have been rejected at previous peak at 4.36%. Trend is still up, however, and yields seem set for a move to 4.48% i.e., the 1.382 projection of the latest correction but could spike up to the 1.618 projection at 4.55
No divergence on RSI supports the bullish scenario
To demolish and reverse this a close below 4.04 is needed. First indication of this scenario to play out would be a move below lower rising trendline
The 10-year Treasury Note future is showing s lightly different picture in terms of RSI divergence. RSI divergence is indication the (down)trend is weakening.
RSI is still showing negative sentiment and is moving above 40 threshold. If closing back below there is great likelihood the future will take out the strong support at 108 26/32. A move down to the 1.382 projection at around 107 29/32 could be seen.
Weekly chart shows why 108 26/32 is strong key support. The future has bounced twice from there.
If sellers are failing to push the future to close below the 108 26/32 level a rebound that would break the upper falling trendline is in the cards.
If that scenario plays out key resistance at around 111 13/32. A close above will establish an uptrend.
RSI divergence on both daily and weekly is indicating downtrend exhaustion on both short – and medium-term.
However, a future close below 108 26/32 is likely to push daily RSI to close below its rising trendline thus confirming resuming of the downtrend
Bottomline: 108 26/32 is key
The German Gov’ment 10-year yields are still on the rise moving in a rising channel pattern closing in March peak at 2.77.
A close above could see yields move to test the upper rising trendline and spike up to the 1.382 projection at 2.84%.
The EuroBund Future has closed below support at around 130.14 thus extending the downtrend.
The bottom and reversal pattern on the weekly chart (circled) has been cancelled as the EuroBund future is continuing lower.
This despite RSI divergence, and the Future sees no strong support until around 125.22 I believe that if the Bund future is dropping to the 1.382 projection at 128.92 a correction to set in, but a spike down to the 1.618 projection at 128.16 should not be ruled out.
For the EuroBund future to reverse the down trend a close above 133.34 is needed.
First indication of that scenario to play out is a close above the upper falling trendline
The bottom and reversal pattern on the weekly chart (circled) has been cancelled as the EuroBund future is continuing lower.
This despite RSI divergence, and the Future sees no strong support until around 125.22 I believe that if the Bund future is dropping to the 1.382 projection at 128.92 a correction to set in, but a spike down to the 1.618 projection at 128.16 should not be ruled out.
For the EuroBund future to reverse the down trend a close above 133.34 is needed.
First indication of that scenario to play out is a close above the upper falling trendline
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