Forex Investment and Currency Trading

Overall: The sharp move higher in yields is very similar to what happened into June 2007 and that it will likely be short-lived. FX markets remain choppy. Crude oil remains under pressure but how far will it go? The bias remains that equity markets will head lower again.
Fixed Income: U.S. 2-year yield perfectly met the 2.79% target. U.S. 10-year yield completes double bottom but caution may be warranted. 2’s5’s and 2’s 10’s in the U.S. also appear to be turning. Bund testing good support
Commodities: Crude- how far can this move go?
Equities: DJIA remains susceptible to the downside

• The rise in 2 year yields hit a high of 2.79% last Friday exactly meeting the target of the inverted head and shoulders. This also left if just shy of the horizontal trend line resistance at 2.80% and the 200 day moving average at 2.82%
• Good initial support comes in at 2.60% (under threat now) and then 2.43-2.47%
• The bias is to believe that a top may have been put in on this rally in 2-year yields and that lower levels can once again materialise.

• We have come a long way in a short space of time here. At the close last week it completed a double bottom, which targets 4.64%. Given the view on 2-year yields this could be difficult to achieve at least in the near term with a lot of resistance in the 4.30-4.40% area. In June last year the 10-year yield looked to have broken out to the topside only to fail and turn lower. The peak was posted on 13th June.
• Additionally even though the double top eventually met and exceeded its 3.5% target it gave an initial false break with the real break coming 5 weeks later.
• All this makes us a little cautious about chasing this break.

• 5 year minus 2 year yield: Has broken out of the diown channel in place since 06 March and is also back above both horizontal resistance and the 55 day moving avergae. This further suggests to us that 2 year yields may have peaked. (It led the turn in 2 year yields by 7 trading days in march and turned 10m trading days before the 2 year yield peak last Athursday)
• 10 year minus 2 year yield: Turning off good support and looking set to test good resistance around the 155 basis point area. A break above here would suggest that further topside acceleration could be on the cards.