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- USD/JPY rises to 115.00, its highest level since November 22nd.
- The dollar is marginally higher on the day, but the normal year-end caution applies. As appealing as this move appears to be, keep in mind that it comes under tight liquidity conditions. That makes it difficult to trust any breakout.
- In the case of USD/JPY, the weekly close will be an intriguing point to watch. Since October trade, buyers have been attempting and probing the resistance zone of 114.37-74.
- There was a brief break above 115.00 last month, but buyers failed to remain with it, making the November high @ 115.52 a major resistance point, but the weekly close – particularly one above 115.00 – is a more significant technical level to watch.
- While the chart appears to be optimistic, we’ll have to wait and see whether there is any follow-through in the next year. There’s nothing quite like a fake break under year-end market circumstances.
- For the time being, the USD/JPY might take confidence from steadier yields and stronger US futures. 10-year Treasury rates have risen 1.4 basis points to 1.494 percent, while S&P 500 futures have gained 0.2 percent on the day. However, the previously indicated caution remains very much in effect.
Latest ECB statistics – 29 December 2021 Eurozone November M3 money supply +7.3 percent versus +7.7 percent y/y previous With the ECB not yet turning off the taps, broad money growth in the eurozone continues to accelerate as the year comes to a close, with yearly growth remaining strong.
Switzerland December Credit Suisse investor sentiment was 0.0, compared to -10.8 the previous month.
There is a little improvement in sentiment as omicron fears are brushed aside following early concerns.
Swiss financial analysts have so far brushed off the new type of coronavirus in their estimates and are drawing the year to a close with a neutral outlook, according to Credit Suisse.
The reading gauges analysts’ forecasts for the Swiss economy and other economic indicators in the coming six months
- A number of arguments in favour of a greater yield
- Let’s go directly to the point. With the Fed expected to raise rates next year, Treasury yields are remaining supportive for the time being, particularly at the short end of the curve. In any event, the first rate rise is expected to occur by the middle of next year.
- That is essentially what has been communicated to the bond market. There is a justification for Treasury rates to rise more as long as economic circumstances allow for them and further rate hikes follow.
- In addition, the Fed’s reduction will weaken demand for bonds in general. On the supply side, Yellen and company may still be required to keep up with huge issuances to support government expenditure.
- This is also one of the arguments for rising yields. For the time being, the market consensus appears to be 10-year rates heading towards 1.8 percent to 2.0 percent. That’s totally reasonable if economic forecasts and the inflation/Fed outlook pan out. However, much depends on pandemic-related events and the Fed’s willingness to keep its promise.
- In terms of the short-term perspective, I believe the technicals will speak for themselves:
- Ten-year yields are trapped in a wedge, and something has to give. There may be reasons to talk up yields right now, but the chart will ultimately determine what happens next.