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European Open: A (technical) case for a pullback in yields

Article By: ,  Market Analyst
March 29, 2022 5:42 AM

Asian Indices:

  • Australia's ASX 200 index rose by 56.9 points (0.77%) and currently trades at 7,469.30
  • Japan's Nikkei 225 index has risen by 167.98 points (0.6%) and currently trades at 28,111.87
  • Hong Kong's Hang Seng index has risen by 98.59 points (0.45%) and currently trades at 21,783.56
  • China's A50 Index has fallen by -18.51 points (-0.14%) and currently trades at 13,402.16

UK and Europe:

  • UK's FTSE 100 futures are currently up 30.5 points (0.41%), the cash market is currently estimated to open at 7,503.64
  • Euro STOXX 50 futures are currently up 28 points (0.73%), the cash market is currently estimated to open at 3,915.10
  • Germany's DAX futures are currently up 102 points (0.7%), the cash market is currently estimated to open at 14,519.37

US Futures:

  • DJI futures are currently up 25 points (0.07%)
  • S&P 500 futures are currently down -16.25 points (-0.11%)
  • Nasdaq 100 futures are currently up 2.25 points (0.05%)

The US 10-year treasury note yielded over 2.5% yesterday for the first time in nearly three years. It’s been beneficial for the US dollar which has continued to outperform, particularly against the yen thanks to the BOJ’s ultra-dovish stance. But we have noted that the price of the 10-year note (which moves inversely to yields) has stalled at a key support zone around 94*12 to 94*30. And if that support zone holds and prompts a rally in prices, it should send yields lower. As it’s been a while since markets have experienced lower yields, any drop in them could inadvertently weigh on Wall Street whilst supporting safe havens such gold. Regardless of the outcome, bond yields remain a key market to watch.

 

FTSE 350: Market Internals

FTSE 350: 4194.43 (-0.14%) 28 March 2022

  • 224 (63.82%) stocks advanced and 120 (34.19%) declined
  • 9 stocks rose to a new 52-week high, 2 fell to new lows
  • 36.47% of stocks closed above their 200-day average
  • 47.01% of stocks closed above their 50-day average
  • 17.66% of stocks closed above their 20-day average

Outperformers:

  • + 4.80% - Moonpig Group PLC (MOONM.L)
  • + 4.46% - TUI AG (TUIGn.DE)
  • + 4.04% - Wizz Air Holdings PLC (WIZZ.L)

Underperformers:

  • -10.7% - Rolls-Royce Holdings PLC (RR.L)
  • -5.44% - PureTech Health PLC (PRTC.L)
  • -4.69% - Vesuvius PLC (VSVS.L)

Consumers appear a tad confused

The Conference Board release their consumer confidence report at 15:00 GMT. But we see quite a divergence between consumer reports at present worth noting. Whilst the Conference Board survey is down from its 2021 high, it currently sits at 110.5 which is comfortably above its long-term average of 95.9. Meanwhile, the University of Michigan sentiment has plunged to a 10.5 year low and fell beneath its long-term average 9-months ago. But if we look past the huge gap of the headline data, a common theme shred by both surveys is that current conditions and expectations are pointing lower. And when consumers stop consuming, it weighs on growth prospects. Therefore, another weak print today only exacerbates concerns of stagflation with such high levels of inflation. 

USD/CHF pulls back into support

Price action on USD/CHD leading into March was very choppy, but we are now seeing spells of cleaner price action which suggests it is tyring to form a trend. From the 7th of March it rallied over 3.3% over the next seven days before pulling back within a continuation pattern (which appears to be some form of falling wedge). Yesterday we saw prices closed firmly above the wedge’s trend resistance and tap 0.9380 before entering a period of consolidation.

We can see on the four-hour chart that that its retracement is trying to build support around its 50-bar eMA and 38.2% Fibonacci level, but we also have the 50% level around 0.9320 for potential support should this retracement grind lower. From here we are now awaiting a bullish candle to for and signal that momentum has realigned with its bullish trend, to then target the 0.9380 high and breakout towards the base of the wedge at 0.9460. 

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