The bond market continues to set the tone in trading this week

Technical Analysis

Author: Justin Low | bonds

The selling in Treasuries continues after the technical break last week

And that is continuing to underpin yen pairs in general, with USD/JPY pushing towards 111.20 ahead of European trading today - its highest since 2 July.

As mentioned since last week, the technical break higher in yields is one that is tough to challenge at the moment and in the case of 10-year yields, there is a good chance of seeing the momentum carry towards 1.60% or 1.70%.

Adding to the technical case is the fact that Fed confirming the taper timeline and also the growing worry about stagflation that is being brought about by the energy crisis and slowing global recovery following the summer.

While the Fed maintains that inflation is transitory, the latter makes it tough for them to keep such a stance especially if price pressures continue to run hot through to next year.

If anything else, it just feels like they don't want to spook markets too quickly at this point. Taper for now. Hike later. That's the thinking and it doesn't mean that they will not backtrack from their current position/outlook. It wouldn't be the first time.

In any case, the bond market remains a key driver to watch out for in trading this week - especially for the dollar and yen pairs - and it looks like yields are likely to still rip higher with 2-year yields also now pushing above 0.30%.

Besides that, 30-year yields are also holding above 2.00% and are on the cusp on contesting key technical resistance from its key daily moving averages @ 2.04% to 2.06%. A firm break above that could see the selling in Treasuries pick up.

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