Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

As German 10-year yield has risen, it is now testing an important zone of resistance levels What happens here around minus 39 bps to minus 36 bps is going to be key, at least in the short term.If it is overcome, we could be on our way to minus 15 bps over the coming weeks which would likely support EURUSD given how US yields seem to lack a strong trend

As German 10-year yield has risen, it is now testing an important zone of resistance levels What happens here around minus 39 bps to minus 36 bps is going to be key, at least in the short term.If it is overcome, we could be on our way to minus 15 bps over the coming weeks which would likely support EURUSD given how US yields seem to lack a strong trend

Founder

Olivier Desbarres

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4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

Federal Reserve Chairperson Jerome Powell’s pre-prepared opening <a href="https://www.federalreserve.gov/newsevents/speech/powell20210827a.htm" target="_blank" rel="noopener">speech</a>at the Jackson Hole Symposium on Friday afternoon was a key litmus test for the central bank. Powell took yet another small step towards an eventual tapering this year of the Fed’s asset purchases and a tightening of arguably extremely loose monetary policy while pouring cold water on any talk of policy rate hikes, broadly in line with our expectations. Price action in US rates, equity and FX markets in the past four days would suggest that Powell has successfully cleared yet another important hurdle. US Treasury yields across the maturity spectrum are down since Thursday’s close in the bottom half of their post 16th June Fed policy meeting range, the US Dollar has weakened about 0.7% to a 3-week low and the S&amp;P 500 is hovering near a record-high (see Figure 1). <a href="https://www.chicagofed.org/publications/nfci/index" target="_blank" rel="noopener">National financial conditions</a> remain very easy and supportive of domestic economic growth. Notably recent market moves have been orderly, with volatility still pretty modest. Perhaps unsurprisingly given low US Treasury yields and buoyant US (and global) equities, Emerging Market currencies, particularly high-yielders, have outperformed in the past month.The next hurdle for the Fed and financial markets is the 22nd September policy meeting, with the spike in market volatility following the 16th June meeting still fresh in their minds. We think the Fed will refrain from giving a more specific timeline for the start of its taper and do so only at its <a href="https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm" target="_blank" rel="noopener">3rd November</a> meeting to retain some data-dependent policy flexibility. However, we expect the Fed’s updated dot-chart to show a further hawkish shift in terms of the appropriate timing for policy rate hikes. Whether this jars, even if temporarily, with Powell’s disassociation between QE and interest rate policy is open to debate.We are for now sticking to our core scenario that the Fed will only start hiking its policy rate in 2023 but that the gap between the start of the taper and the start of the rate hiking cycle will be smaller than the 23 months gap in 2014-2015.Nevertheless, the Fed will want to engineer a slow landing – music to the ears of doves and bulls but arguably a concern for hawks fearful of the Fed and financial markets stalling.

Federal Reserve Chairperson Jerome Powell’s pre-prepared opening speechat the Jackson Hole Symposium on Friday afternoon was a key litmus test for the central bank. Powell took yet another small step towards an eventual tapering this year of the Fed’s asset purchases and a tightening of arguably extremely loose monetary policy while pouring cold water on any talk of policy rate hikes, broadly in line with our expectations. Price action in US rates, equity and FX markets in the past four days would suggest that Powell has successfully cleared yet another important hurdle. US Treasury yields across the maturity spectrum are down since Thursday’s close in the bottom half of their post 16th June Fed policy meeting range, the US Dollar has weakened about 0.7% to a 3-week low and the S&amp;P 500 is hovering near a record-high (see Figure 1). National financial conditions remain very easy and supportive of domestic economic growth. Notably recent market moves have been orderly, with volatility still pretty modest. Perhaps unsurprisingly given low US Treasury yields and buoyant US (and global) equities, Emerging Market currencies, particularly high-yielders, have outperformed in the past month.The next hurdle for the Fed and financial markets is the 22nd September policy meeting, with the spike in market volatility following the 16th June meeting still fresh in their minds. We think the Fed will refrain from giving a more specific timeline for the start of its taper and do so only at its 3rd November meeting to retain some data-dependent policy flexibility. However, we expect the Fed’s updated dot-chart to show a further hawkish shift in terms of the appropriate timing for policy rate hikes. Whether this jars, even if temporarily, with Powell’s disassociation between QE and interest rate policy is open to debate.We are for now sticking to our core scenario that the Fed will only start hiking its policy rate in 2023 but that the gap between the start of the taper and the start of the rate hiking cycle will be smaller than the 23 months gap in 2014-2015.Nevertheless, the Fed will want to engineer a slow landing – music to the ears of doves and bulls but arguably a concern for hawks fearful of the Fed and financial markets stalling. 

Powell Put in Play but Greater Challenges Ahead

Tables seem to be turning as German yields look to be on the rise while US yields struggle to breakthrough (at least so far)This seems to be a combination of adjusting central banks and possibly also market positioning/assumptions.

Tables seem to be turning as German yields look to be on the rise while US yields struggle to breakthrough (at least so far)This seems to be a combination of adjusting central banks and possibly also market positioning/assumptions.

Germany and US Yields Point to Higher EURUSD

One of the worst performing Asia currencies this year has started to reverse.Is today’s break below the 55 day moving average important?If previous examples are any guide, then the answer is a firm yesUSDTHB towards 31.25 area?

One of the worst performing Asia currencies this year has started to reverse.Is today’s break below the 55 day moving average important?If previous examples are any guide, then the answer is a firm yesUSDTHB towards 31.25 area?

USDTHB Gives Another Signal for Further Losses

Cross Asset Strategy

Commodities are on the rise again with the clearest sign coming from Oil which posted a strong bullish weekly reversal and is expected to go back to the highs. US breakevens have also rebounded and further gains along with commodities are likely to unfold.The expectations of US data points remain high which is keeping a lid on US nominal yields in the short term.Combining the above, lower negative real yields in the US should be seen in the short term just as we saw in late July when Oil rallied from similar levels. This mix is undoubtedly helping precious metals. The month end’s closing price on Gold is the next important development to watch, especially if we close above $1,834. Silver is also on the up towards $25. In the end the USD remains on the back foot.

Commodities are on the rise again with the clearest sign coming from Oil which posted a strong bullish weekly reversal and is expected to go back to the highs. US breakevens have also rebounded and further gains along with commodities are likely to unfold.The expectations of US data points remain high which is keeping a lid on US nominal yields in the short term.Combining the above, lower negative real yields in the US should be seen in the short term just as we saw in late July when Oil rallied from similar levels. This mix is undoubtedly helping precious metals. The month end’s closing price on Gold is the next important development to watch, especially if we close above $1,834. Silver is also on the up towards $25. In the end the USD remains on the back foot. 

Lower Real Yields with Higher Oil Supports Gold

United States

The US dollar is the official currency of the United States of America.

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Testing Time for German 10Y Yield

The rise in German yields has now taken the market to important levels that need to be watched in the short term. Any higher from here would amount...

Shyam Devani

Powell Put in Play but Greater Challenges Ahead

Powell passed Jackson Hole test - market vol has remained subdued, rates have fallen and equities rallied. But Fed faces sterner tests as it ambles...

Olivier Desbarres

Germany and US Yields Point to Higher EURUSD

There are early signs that yields in Germany are diverging from the US just as we saw in April this year. Is this the start of a decent rally for...

Shyam Devani

USDTHB Gives Another Signal for Further Losses

USDTHB is reversing and today's break should be taken seriously. Further losses down to the 200 day (appx. 3.5% lower) are expected

Shyam Devani

Lower Real Yields with Higher Oil Supports Gold

The bullish reversal in Oil combined with lower nominal yields gives rise to trends that were seen in late July. Lower 'real' yields, higher Gold...

Shyam Devani

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