US 10 year Treasuries hit 2% for the first time since April last year as the fear grows, at least for the bond vigilantes, that the US is on the verge of a 1994 style recovery and bond rout. Off course the corollary of that is Stocks should do ok, the Aussie Dollar and Swiss Franc will be under pressure from the reduction of the safe harbour bid and stocks will continue their unrelenting strength.
The key for the US 10's was the Durable goods report which printed 4.6% against 1.8% expected with the ex-Transports number a stellar 1.3% against the 0.7% expected. This more than balanced out the weakness in pending home sales which fell -4.3% against the 0.3% fall expected with the Dallas Fed manufacturing index up to 5.5 from 2.5 also helping.
No doubt a little bit of disquiet in the Treasury trader ranks is the upcoming Fed meeting this week after the last meeting plus the minutes send mixed messages to the markets.
As you can see in the chart above the recent sell off has accelerated from the six month or so uptrend so the Fed meeting, its announcement and ultimately its minutes are going to be very important for the Bond gurus.
But then of course they are also going to be important for the Stock market as well. We know that the Fed's balance sheet growth is highly correlated with the rise and not rise of stocks since 2009 so any hint that the Fed might be moving toward thinking about the withdrawal of its bond buying programme will hurt stocks - it has to happen eventually if the US economy is healing it is just a question of when.
This is going to be the year of ranges then breakouts I reckon ans as I highlighted in the 2013 outlook that we posted a week or so back, (webinar now attached thanks to FXStreet)and the Canadian dollar is another case in point with the combination of the Bank Of Canada continuing to push back its monetary tightening plans and turning Dovish as inflation undershoots.
As can be seen in the chart above the USDCAD rally of last week broke through the top of what through time, going back to 2011 has been a fairly important pivot level for USDCAD defining periods of USD weakness and strength. One day does not a trend make but traders should be looking at this - our system is long.
HSBC upped German stocks to overweight over the weekend but that didn't stop the DAX from falling 0.32%. The FTSE was up 0.15% however and the CAC rose a little up 0.08%. Milan was on a tear though with a rise of 0.96% in contrast to the 0.59% fall in Madrid.
In the US it has been an up and down session with Caterpillar and Boeing down but Apple being lifted by punter buying after the recent acute weakness. With 40 minutes before the close the S&P 500 is basically flat at 1502, the Dow is up just 4 points at 13,900 and the Nasdaq is 0.29% higher.
In Asia yesterday Shanghai leapt 2.43% but the Nikkei was 0.94% lower.
Just to recap on Friday's price action the Euro busted up through the top of the box after the better than expected IFO release Friday and the Aussie busted down decisively through the bottom, or at least continued recent weakness. Over the past 24 hours Euro rallied up to a high of 1.3477 and sits up 1.3454 down 0.07% on the day. USDJPY hit a high of 91.25 before also retreating a little back to 90.71. The Aussie was calmer as we were out for the Australia Day holiday making a high of 1.0430 and a low of 1.0382 and it sits down 0.03% at 1.0412 on the day. The biggest movers were the Pound and the Loonie both of which are starting to look acutely weak. Sterling fell another 0.69% and now sits at 1.5691 with the 1.60 level looking a long forgotten dream. CAD is actually up a smidge versus the USD on the day at 1.0058 but as we showed in the chart above the current level is crucial for the medium term outlook.
We've used the chart above of the Euro reverse head and shoulders and it is clear that so far the Euro has not been able to push up through resistence. Already in Davos we have heard protestations from European policy makers about the Euro's recent resurgence and it is clear they don't support a move higher but there is scant little they will be able to do about it if this neck line breaks. Some will be looking for a run toward 1.50.
Shorter term support is 1.3419 and resistance 1.3480/90 then 1.3500.
For the Aussie it is recovering a little from being oversold on the 4 hour charts as you can see below. The break of our Darvas box has rewarded handsomely and support is now 1.0380/85 and resistance 1.0425/35 then 1.0455/65.
Gold has been lower for a few days now and fell another 0.24% last night to $1652. In truth this is no big deal as gold is simply following its multi-month downtrend we have identified for a while now. Further weakness could be afoot. Silver has likewise followed Gold lower and its high beta precious metal status has seen it lose 1.36% overnight. Crude remains strong rising 0.59% to $96.45 Bbl.
Corn was up 1.18%, Sugar rose 2.18%, Cattle rose 1.9% and Cotton was on 1.02%.
In Australia today its the one piece of data, well series, that you need to know what is going on in the economy when the NAB Business survey is released. Tongiht we get German confidence, Spanish retail sales and US Case Shiller House index.
Catch me on Twitter @gregorymckenna or @FX_Global