Sep 24 2013 - Rate Brief
The 10-yr yield nicked 3.000% in overnight trade back on September 5, but failed to do so during the cash session. The benchmark yield has been in a steady decline since, aided by the Fed's decision to delay the tapering of its bond-buying scheme. A recent bid has pushed the 10-yr yield below 2.700% support that is helped by the 50-day moving average, and now has traders focused on closing the August 12/13 gap. Doing so would set up a move into the 2.600% region, the final level of support before the ever important 2.450% area. Recent action is notable for many reasons:
- The 30+ year bull market in Treasuries remained intact as 10-yr failed to bust through trendline resistance off the 1981 highs.
- The recent surge off the May lows has stalled at the psychologically important 3.000% level, which also happens to reside near the 61.8% Fibonacci retracement of the 2011 highs to 2012 lows.
- Action has managed to push below the 50-day moving average for the first time since rates began their rise in early May.
When hints of a potential tapering broke, the U.S. Dollar Index tested, but failed, at new highs. Since then, the Fed's decision to delay the taper has had a significant impact. Selling pushed action below important 80.80/81.00 support before buyers stepped in to defend the 80.00 level. This area will be tracked closely as critical trendline support off the September 2011 bottom is now in play.
The selling has dropped the greenback to multi-month lows against many of its counterparts. While the run has been impressive, specifically for both EURUSD and GBPUSD, USDCAD should be the one garnering all the attention. Trade has broken down to its worst level since June, but more importantly is the current test of trendine support off the September 2012 bottom. The pair tends to lead broader moves in the greenback, and a breakdown would be problematic for dollar bulls. The best the dollar can hope for is a period of consolidation if that trendline were to give way.
