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Technical Update - US 10-year Treasury yields, Euro Bund future and UK Gilt future
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: Higher Euro yields after heavy selling in the Euro Bund future. Seems likely October lows will be taken out
UK Gilt future dropping hit by heavy selling after breakout of rising wedge pattern establishing new down trend
US 10-year Treasury yields found a floor at 3.41 bouncing higher. Likely to resume uptrend with the medium-term picture of higher yields around 4.75-5% still in play.
US 10-year T-Note future is breaking below support at 113 12/32. A daily close below the future is likely to trade lower. There has been divergence on RSI for a couple of weeks suggesting the upwards correction since October trough was coming to an end.
A sell-off down to strong support at around 112 seems likely. A close below there is no support until around October lows at 108 26/32.
To resume uptrend the T-Note future must close above 115 12/32
After hovering around the 3.50% level for a couple of weeks the US 10-year Treasury yields seem to have found a strong floor at 3.41% now bouncing higher. If closing above minor resistance at 3.63 there is room up till resistance at around 3.90.
The medium-term picture of the US 10-year Treasury yields to reach 4.75-5.00 in Q1-Q2 2023 is still in play despite yields did drop below 3.50%.
Extract from analysis published 16th November: Longer-term/going in to 2023: Within a few points US 10-year Treasury Yields reached 1.382 Projection of the 2019-2020 downtrend before retracing.
Monthly RSI is bullish and there is no divergence indicating we should expect new highs into 2023. US 10-year Treasury Yields has no strong resistance until around 5% which is also close to the 1.618 projection of the 2019-2020 correction.
Depending on the size of the current correction i.e., where it will bottom out, it could give energy for a move to 4.75-5.00%.
For this bullish scenario to be demolished a close below 2.50 is needed.
The Euro Bund future has been dropping like a stone after breaking out of its rising wedge pattern. Fast approaching October lows around 134 the Future is currently trading at the 0.786 retracement of the Q4 correction where a minor bounce could be seen
RSI below 40 indicating lower levels are quite likely. If Euro Bund takes out the 134 level it could reach the 1.382 projection of the Q4 correction at 130.44. There is divergence on weekly RSI but if it drops below its rising trendline we are likely to see new lows.
Close to the 1.382 projection level is the 0.786 Extension of the 3rd vawe down at around 130.66 i.e., what could look like the 5th vawe down would be 78.6% of 3rd vawe. See monthly chart
However, if closing below 134 there is no strong support for the Euro Bund future until 121. Strong support back from 2011.
For Euro Bund to reverse this bearish picture a close above 143.38 is needed.
UK Gilt future broke bearish out of its rising wedge like pattern but have tried to get back in for a few days before being hit with heavy selling.
Gapping lower today Gilt is now back below its 55 daily SMA.
Strong support at around 99.92 where a minor bounce should be expected. However, RSI is below 40 with no divergence indicating Gilt could break the support at 99.92 and drop to 97.50 possibly 94.35 which are the 0.618 and 0.786 retracements respectively of the uptrend following the October trough.
To reverse this bearish picture a close above 106.95 is needed.
RSI divergence explained: When the price of an instrument is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and a weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
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