Another trading week has begun mixed despite some relief on the U.S. Debt market. U.S. ten-year Treasuries’ yields stepped back to 1.68% from their highs at 1.75%. However, stock markets were not catching up with this break as European stock markets ended Monday mostly in the red zone, while American stocks gained led by high-tech NASDAQ 100, which rose by more than 2%.
We may suggest that the next round of poker with the Federal Reserve Chairman Jerome Powell who is going to speak in a front of the Congress this week has begun. This time Fed’s Chair will testify in front of politicians who could give Mr. Powell a harsh welcome with the next two days. And this time bond yields are even higher.
However, it is unlikely that Powell would change its rhetoric, as it is not only his personal position, but the point of view of the U.S. Treasury too. The latter needs to borrow huge amounts of money and need favorable conditions to attract investors.
What could the Treasury need to get the money? The yields should be higher and the Greenback much stronger. Ideally this should be accompanied by a plunging stock market to make the U.S. debt a true and only safe haven in a stormy weather.
If it is the plan than Mr Powell is acting wisely holding the bluff cards. He is playing not for himself but paired up with another strong hand with nuts that is waiting for all the players to squeeze all their money into the pot. Only when the gambling is over Mr. Powell may make an about turn in his position.
So, where are these 10-year bond yields that could satisfy the Treasury? Certainly above 2%. So, we may see another set of cards this week as yields may move closer to 2% pressuring stock markets and G7 currencies.
For the broad market S&P 500 index it may mean a dive below 3900 points to a first support level at 3830 points, and then further down to 3790 points. When the technical picture would turn into a bearish one the S&P500 may plunge to 3450 points. It is hard to imagine what could call of such scenario and trigger another rally in stock indices.
Oil market is in continuous correction as world economic growth is slowing down for the tenth week in the row diminishing the potential demand for crude. Technical picture suggests further decline in prices to $62.80-63.90 per barrel of Brent crude. If the pressure would be severe, prices may slide to $61 per barrel. This level would be interesting for considering buy positions.
Gold prices are in a sideways moments in a range of $1700-1750 per troy ounce. It we look at the present yields in the debt market we may suggest prices should be below $1700 per ounce. But investors may still assess the current situation with Treasuries for further developments. Basic scenario suggests the 10-year Treasuries’ yield would rise above 2%. So, we may expect gold prices to decline after a short break towards long-term targets at $1400-1450 per troy ounce.
The Greenback is a click away from a mid-term upside move. The EURUSD is still holding near 1.19400. The pair is looking for any sufficient push to dive to 1.15300.
The same picture is in GBPUSD, where weekly support level at 1.39150 holds the line for the Pound. Powell’s statements may become the trigger to dump the pair to 1.35100.
The USDJPY is ready to begin sliding from current resistance levels at 109.00-109.50 to the lower support level at 106.50. However, there is a minor chance for the upside spike to 110.50 where the pair may finally rebound downwards.