Weekly Trading Notes – Flying bond yields still impacting sentiment


  • Markets continue to be thrown around by movement in the bond markets with focus on US Treasuries and German Bunds. Both have been pushing higher and have been impacting market sentiment. Equity markets (specifically S&P 500 and DAX Xetra) have been suffering as bond yields have pushed higher, with a negative correlation between the direction on yields and the direction of the equity markets. The Bund yield pushing above 1.00% is a concern for the DAX, whilst technical breakout targets imply 1.220% in due course. There is also a positive correlation between the Bund yield and the euro, which has continued again on Tuesday as  pullback on the bund yield coincided with an intraday correction back on the euro. Interestingly, US Treasury yields continue to push higher again adding pressure on the S&P 500.


  • The dollar has come under pressure this week despite the strong payrolls report last Friday. Volatility remains high near term, whilst it was interesting the Bank of Japan’s Governor Kuroda felt the need to verbally intervene in an attempt to prevent the continued weakness on the yen. The intervention has worked and it could it continue with the BoJ monetary policy next Friday? The Dollar Index continued to fly around without any significant trading direction. False moves seem to be fairly commonplace now.
  • Greece is still a big uncertainty for the euro, but the improving economic indicators and less hawkish ECB in recent weeks for the Eurozone have helped to prop up the euro. More attention will be given to the German ZEW data early next week, whilst newsflow on Greece will only add to the volatility.
  • Commodity prices have been mixed of late with the oil prices still range-bound amid no new increases in production levels for OPEC and inventory de-stocking in the US. Gold and silver have reacted positively since breaking key supports recently, however the rebounds look to be counter-trend. Rising bond yields will also act as a barrier to gains for the non-yielding metals, whilst gold ETFs have been noting outflows which should also be a cap on any price rallies.
  • The economic data is fairly light this week although the focus will clearly be on the Retail Sales. If they can pick up as the forecast suggests then it would be eh first improvement in the year on year data since last October. Also Michigan Sentiment is key as it fell to a seven month low last month, so if this picks up as well as Retail Sales then it would be another big signal that the Fed would be looking for. Markets will also be building up towards the FOMC next Wednesday in which traders will look for some potential hints at when the committee might rate hikes
  •  Watch for: US Retail Sales, Michigan Sentiment



EUR/USD – The volatility remains high but the resistance around $1.1450 is now key      

  • The problem of how the creditors can adequately resolve the Greece situation continues to rumble on in the background and whenever it rears up it coincides with an increase in volatility. Bund yields continue to push higher and this is helping to drive the euro also higher. Traders will also become increasingly mindful of the FOMC next Wednesday.
  • Further volatility today has seen another failure around the $1.1380 high from last week ($1.1384 was the intraday peak) before a 100 pip reversal. This shows the lack of decisiveness in the market currently, with the crucial resistance overhead around $1.1450. Momentum indicators are equally mixed. I still see the $1.1065 old resistance playing a role as a pivot level for the near to medium term and this is the basis of support.
  • Watch for: US Retail Sales, Michigan Sentiment

GBP/USD – Watch for a lower high below $1.5700

  • UK economic data has been mixed of late, but does not mean that the positive surprises do not induce a pop to the upside. However, the stronger Payrolls data sets us up nicely for Retail Sales and Michigan Sentiment this week. If these provide a positive surprise then Cable could quickly retreat back again.
  • I still see a near term rally as being counter to a medium term bear phase. The lower high at $1.5700 remains key to this. Although Cable is looking at a third positive candle in a row (also on a break above resistance at $1.5450) I still expect the rally to peter out in the coming days to leave another lower high under $1.5700 and to retreat once more.
  • Watch for: US Retail Sales, Michigan Sentiment

USD/JPY – Be mindful of a loss of momentum and a correction towards 122 breakout

  • The verbal intervention by the BoJ’s Kuroda could be setting the market up for more formal intent from the BoJ next week. The market may therefore spend the next few days looking to price this move in. Improving US data should be dragging the pair high, however today’s move shows how long the market had become on Dollar/Yen. This may need to unwind now.
  • The break back below 123.50 allied to sell signals (ie. profit triggers for long positions) could now start a bit of a shakeout that drags the pair lower near term. The support around the breakout at 122 and above 120.80 seems natural near term, whilst Fibonacci retracements at 122.35 (50%) and 121.55 (61.8%) are also supportive.
  • Watch for: US Retail Sales, Michigan Sentiment

Gold – Range breakdown opens $1142 but sell into the strength

  • The strong negative correlation between the dollar and gold remains in play. The strong Payrolls report induced the breakdown and the current rally looks to be unwinding some of the move, but if the strong data continues then the weakness in gold can be expected to resume. Watch out therefore for the Retail Sales and Michigan Sentiment data to provide a catalyst.
  • The range between $1178/$1224 was broken last week to re-open the key support at $1142. A pullback rally is into its 3rd day now, with the resistance around $1186 holding for now, whilst the bears would not be calmed until a move above $1196. Rallies look to be a chance to sell now, but wait for the sell signal.
  • Watch for: US Retail Sales, Michigan Sentiment, Treasury yields

Indices – Equities being driven by sentiment on bond markets

  • S&P 500 – a test of the 2068 key May low has held so far, but further rises in Treasury yields will see this pressure continue. Outside of earnings season there is little corporate news to be driving sentiment. Technicals remain corrective too.
  • DAX Xetra – Volatility remains elevated, and the breakdown below 11,167 (key May low) was a key move. Technicals remain corrective for now and if the Bund yield continues to push above 1.00% then the pressure on the DAX will continue.
  • FTSE 100 – A breach of the May low at 6810 has added to the corrective argument and the technical are suggesting that rallies will now be viewed as a chance to sell. The resistance now comes in between 6810/6885.



Wednesday 10th June

  • US – Oil Inventories
  • New Zealand – RBNZ monetary policy

Thursday 11th June

  • Australia – Unemployment
  • China – Industrial Production
  • China – New Loans
  • US – Retail Sales
  • US – Weekly Jobless Claims

Friday 12th June

  • US – PPI
  • US – University of Michigan Consumer Sentiment (prelim)



Monday 15th June

  • US – Industrial Production (and Capacity Utilization)
  • G8 Meetings

Tuesday 16th June

  • Australia – RBA meeting minutes
  • UK – CPI
  • Eurozone – German ZEW Economic Sentiment
  • US – Building Permits (and Housing Starts)

Wednesday 17th June

  • UK – Unemployment
  • UK – BoE meeting minutes
  • Eurozone – Final CPI
  • US – FOMC statement (with economic projections + press conference)
  • New Zealand – GDP

Thursday 18th June

  • Switzerland – SNB Monetary policy + press conference
  • UK – Retail Sales
  • Eurozone – Targeted LTRO
  • US – CPI
  • US – Weekly Jobless Claims

Friday 19th June

  • Japan – BoJ monetary policy + press conference
  • Canada – CPI

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