Global macro overview for 04/10/2018
Yields of 10-year US Treasury bonds jumped yesterday 12 bps to 3.18%, and today added another 5 bp. Such a high-interest rate has not been since 2011. In the case of 30-year-olds, the 30-year peaks have been established at 3.38 %. The unprecedented move came from the interruption of the overall calmness in which the market has been in place for weeks, without responding to a wave of positive information. It seems that you can not end the strong surprises in the macro data without saying that “it’s already in the price”. Yesterday, however, was a special day of combining hit. Strong ADP readings and the ISM index for services from the US raise expectations before Friday’s NFP report. Moreover, the Fed president Jerome Powell said that he is “very pleased” with the economic developments and the Fed may raise interest rates even above the neutral level. Finally, technical aspects have accelerated the increase in profitability. The combined impact of these three factors determined the scale of the profitability rally. From the side of foundations, it is important, however, that the market is finally beginning to believe that the Fed is ready to raise rates more than three times (in December and twice in 2019). And not just because the Fed promises so: the economy does not slow down and real wage and inflationary pressures are becoming real. The first one is additionally conquered by Amazon’s declarations of increasing the minimum wage, the second – unrelenting oil prices.
Let’s now take a look at the US Dollar Index technical picture at the H4 time frame. The market spiked higher towards the technical resistance at the level of 96.12, but was capped there and now is testing the broken technical support at the level of 95.56. The market conditions are clearly overbought and there is a visible bearish divergence between the price and the momentum oscillator, which indicates a possible pull-back towards the level of 95.26.