US Yields Rising Again Putting Pressure on EURUSD & Gold

Okay, it is Tuesday the 30th of March. Hope you're doing well, and usual briefing to get you underway for the day ahead. And overall this morning, a bit of a continuation of where we left things last night. In fact, we did see yesterday the 10-year Treasury yield in the US rise to 1.74% and the 5-year yield moving to the highest it's been in a year. Uh, so subsequently the dollar just holding on to some of the gains that we've seen yesterday, albeit the Dixie relatively unchanged. But generally speaking, then that high yield environment is weighing on the likes of the US 10-year and also gold prices. So just a quick look there, as you can see yesterday, quite a meaningful move here in fact for T-notes, having been rejected on 3 occasions on the upside around that 132.09 level. This was through the course of really last week, and I'd say the rationale here really is a combination of a few things we're going to discuss, uh, namely that is the speed of which the US administration is aiming to get around 90% of US adults eligible for a vaccine shot in a very short period of time, 3 weeks, as they continue at a pace to roll that out. And obviously this is irrespective of the fact that the COVID cases have actually gone up for a second consecutive week in the US. But it also came amid some positive news in regard to Pfizer and Moderna as well, which will, as I say, we'll delve into those headlines. But so generally positive vaccine information. We've obviously got a speech coming up tomorrow where Biden is going to outlay further plans on his infrastructure stimulus, which again is going to be sizable, kind of $3 trillion plus. And so that's just getting yields moving higher again for the time being. And very much so, that Archegos, the US hedge fund news, which kind of did dominate quite a lot of the media yesterday, hasn't really reverberated across the broader market. Seems very much isolated to just that specific unique hedge fund's positioning in certain individual stocks and the associated banks and prime brokers that were dealing with them specifically, rather than out into the broader market, any type of contagion effect of liquidation of positions hasn't materialized. So yields moving higher. Yeah, technically, as we do drift down here, probably just keeping an eye then at those lows we were seeing back on the 18th, 19th. We're pretty much there at the moment. That would constitute the 1.31 handle. Uh, looking on the daily then, we have dropped back through and we're remaining below that key kind of area in the 10-year that was resistance back at the end of 2019, the beginning of 2020, and where we've just— we've dropped below before. So does mean that technically it keeps the pressure on undoubtedly going forward, despite the slight reprieve that we've had recently in yields. Ultimately, with global growth set to pick up sooner or later at some point, then it's almost inevitable that yields will continue to push higher. And so Um, ultimate downside here, 1.3020, looks very reasonable in terms of directionally where we're heading at the moment if we can break through those previous weekly lows. Um, likewise, gold then is feeling a bit of pressure, uh, under this kind of, um, context. We can see we, we broke out yesterday to the downside. We remained a little heavy here this morning, and we're just finding a bit of a platform for price now of resistance on the upside, having broken through it, snapped down lower on the pullback. Now that 1705.5 is going to act as a bit of short-term resistance, particularly if the dollar remains firm, if US yields keep moving higher. Be interested to see how that performs on the daily. Obviously we're around a technically significant level, and we had that low printed on 12th of March, which is also on the daily chart psychologically around this 1700 handle, that low on the 12th seen at 1696.5. And then again, worth watching because that does open up the prospect for some of these deeper moves down towards where we saw the initial low back on the 8th of March, which was at 1673. Starts to encapsulate some of those previous lows we were seeing back in summer, and that kind of range low from Q2 into June of 2020. Meanwhile, with the dollar just holding its gains at the moment from, from yesterday's pickup Uh, just worth keeping an eye on the EURUSD currency pair. The kind of pullbacks here, the, the recovery highs are getting lower as we go down to retest around this 1.1780 level. You can see this is going back to last Thursday, yesterday's session, and in the overnight session on the failed break. So worth, I think, keeping an eye on there. Certainly again on the daily chart, uh, does remain probably favorable to some further downside if we can break through this period, this current level of support and be eyeing down and around that low that we printed on the 11th of November, 1.1754 as a target if that were the case. So again, looking for kind of telltale signs of whether that short would be viable on the 10-year and gold, seeing more downside weight would probably give greater conviction for the move lower directionally for, for EURUSD. Equity markets though remaining relatively robust for for the time being. So it does definitely fit the narrative of what we were discussing on the Biden stimulus and positive vaccine information keeping equities generally buoyed. The Dow finished at a record high yesterday. The Nasdaq, a little bit of underperformance observed at the moment, and the S&P not far from its record high territory, uh, as well, despite the relative flat closes that were seen last night. And then finally, oil prices remain, uh, quite choppy. As you probably would have seen yesterday, the container ship that was blocking the Suez is now up and running, and traffic is running through the canal as per normal. Now I'll update you with a bit of context as how long it will take to clear the backlog in a moment. So we did see on confirmation of that a bit of a downward move yesterday afternoon, but generally speaking, um, I think people are more focused now on the OPEC meeting, which is going to be on Thursday. And there's been some press reports that the Saudis are willing to roll over in May and June, including their potential voluntary cuts as well, which would be supportive of price. Irrespective of the pickup in COVID cases and some questions about demand, the net result is, from an OPEC perspective, they're just willing to continue to keep supply relatively tight for the time being and act more cautiously on— we have not over the pandemic as yet, as far as the Saudis are concerned. And obviously they're the key influential factor in that supply pact. Um, quick look at the headlines then to summarize really. I've kind of given you the top level, a bit more detail. So President Biden said yesterday that 90% of U.S. adults will be eligible for a COVID-19 vaccine in 3 weeks, and that his administration will more than double the number of pharmacies where shots are available. This does come as I'll show you in a moment. We've seen the second consecutive week of pickups in US cases. The other more positive things first though is not only is the commitment for the US continue to be quite aggressive on the rollout using further kind of pharmacy infrastructure to deliver those vaccines, but importantly there was a CDC report last night or yesterday and it was talking about Pfizer and Moderna, of which of course in terms of the composition of the rollout strategy in the US. That, that nation is very heavily tilted towards these two pharmaceutical companies' vaccine as compared to, say, the UK with AstraZeneca, for example. And the COVID-19 vaccines from these two firms effectively prevented coronavirus infections, not just illnesses, and substantial protection is evident after 2 weeks after the first dose. And after 2 doses, I believe it's as much as 90% effectiveness in preventing infections in the first instance. And of course, this is going to be particularly important, trying to cut transmissions in a period of when we're reopening economies. So definitely a positive development there and probably underpins a little bit of the moves that we were just talking about in the yield environment. And it is timely because, as I said, COVID cases have been picking up. And perhaps I can show you a graphic here to give it a little bit of context. What we've seen is new cases, cases in the US rose 9% to more than 431,000 last week. The first time that's happened since January, the cases have increased for 2 weeks in a row. And I guess, you know, this is way lower, of course, than where we were in the peak just going through the new year. But what market participants look, look at is trends. And obviously we've been trending, we've been seeing a really quick deceleration in the case rate. And so this is the first pickup that we've had since these elevated levels. And that's the reason why it is a little bit worrying and constitutes something that's definitely, you've got to be vigilant and worth tracking going forward. What this has led to though, from Biden's approach, is he reportedly thinks that states should pause reopening efforts and warned that we could still see a setback in the US vaccination program. So definitely tactically much different from the prior administration, which was quite aggressive to reopen, get people back to work and jobs and so on. Much more cautious sounding with, with Biden, given the context of what's just happened here in the last 2 weeks with the case rates seeing just a slight uptick. Excuse me. I mentioned the Suez, so as I said, a bit of context. Ever Given, as you can see here, is moving again, and traffic along the waterway is now underway as, as normal. Last night, for context, the Suez Canal Authority had said that navigation started in the canal from 6 PM local time, and that by 8 AM on Tuesday, 113 vessels should have sailed through the Channel. And if continued at this rate, the backlog of roughly 422 ships waiting at both ends of the waterway— so those going north and southbound— could well all pass through, all being well, within the next 3 to 3 and a half days. And then we're back to normal. So this is the reason why I think the market generally as far as oil prices concerned, from a trading perspective, intraday have been fairly nonplussed by this whole event. Despite the quick move that we saw yesterday, I don't think this is going to have a meaningful impact, not unless there's another incident, of course, that causes another blockage. That's not to say that freight costs and so on might have some, some tail effect given the the disruption that it caused. On that point as well with oil, I did mention briefly OPEC. There's been some more source comments, uh, similar to what we would anticipate really going to Thursday's meeting. Saudi Arabia reportedly is said to be happy to roll over the supply, um, kind of pact over through May and June, whereas while it's also said to be prepared to extend its voluntary cuts as it sees global demand is not yet strong enough in the context of bringing back their additional supply with everything that's going on with COVID for the time being. I would say that this is probably the base case now that we'll be looking at. But of course, whether or not they give a kind of voluntary amount that Russia and Kazakhstan, which they've given before to get them to agree to this deal that they can add another $250,000, $300,000. So there's going to be a few parts to, to manage, I guess, in terms of market reaction. I think the rollover is pretty much given, but the voluntary cuts and then what they give to Russia to appease them, to get them to agree to the deal, would be tangible things that could well then constitute a more strict kind of compliance, more bullish for price, or something a little bit more loose that might see then a bit of profit taken from any pre-positioning ahead of the meeting. On a calendar perspective, not, not too busy today, to be quite honest. We've got the German state CPIs throughout the morning, and we've then got the sentiment-based numbers coming out of Europe. But again, these very seldom market moving. So then we go into the Afternoon, there's no major 1:30s coming out of the US. You've got US consumer confidence coming out, um, later on in the afternoon. It is expected to see quite a market uptick from the previous month's reading. The API after market as per normal. A few Fed speakers, all voters, so do be mindful of that. They're speaking from 2 PM London time, 5 and 7 PM respectively. So all very much centered around the US trading hours. Probably the most notable one from a topic point of view is Bostic speaking on the post-COVID economy. That'll be at 5 PM London time. But yeah, that is it. So let you guys get on with the session. And any questions at all, feel free to just drop me a comment in the Discord room on Amplify Live. Or if you're watching this delayed on YouTube, don't forget to subscribe to the channel. Uh, and yeah, feel free to ask me any questions there as well. All right, take care. Have a good day, guys.