10-year US Yields are Breaking from the Triangle Pattern

January 25, 2021 at 07:10 PM

It looks like the recent rally in the US yields might be over, which could imply further weakness for the USD and more gains for US stocks.

The 10-year yield seems to be breaking down from the recent triangle pattern. The support of the formation is currently near 1.075%, and if this level is taken out, bonds could rally further. The next target should be at the psychological level of 1.0%.

As the USD is usually correlated to the bond yield, should the yield continue lower, we might see another selling wave in the FX market.

That could bring the USDJPY pair back to the current cycle lows near 102.60 and the EURUSD pair back to its cycle highs above 1.23.

Additionally, weaker yields are usually a good sign for US stocks, although they have been rallying no matter what. Therefore, if yields start to decline again, stocks might be propelled even higher. 

It is also being said that a decline in yields should be positive for precious metals such as gold or silver. So far, that has not been the case as yields reached their swing high on January 12, but gold and silver continued to be under pressure. 

Our view is that the US government can’t afford higher yield due to extreme deficits and debts, and therefore the Federal Reserve (Fed) will step in every time yields rise. Therefore, the long-term trend for US (real) yields is to the downside, keeping the USD under pressure and increasing stock prices. 

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