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Bond Market Swing led European financial markets to show divergent performance at the beginning of the new week, ultimately recovering from earlier intraday declines. Notably, this resurgence occurred after U.S. 10-year bond yields substantially retreated from their earlier attainment of new multi-year highs.
The FTSE 100 index showed relative underperformance and ended the session on a downward trajectory, primarily due to weaknesses observed in the basic resources sector and a notable reduction in oil prices.
Bond Market Swing: U.S. Markets and Currency Values
U.S. markets showed a similar mixed picture, as they recorded an impressive rebound from their intraday lows. This rebound demonstrated an inverse relationship with the sharp decline in bond yields.
A tweet from Bill Ackman of Pershing Square initiated this shift. Ackman conveyed his decision to close out his bond shorts and emphasized potential vulnerabilities within the U.S. economy.
This announcement caused a surge in bond prices, prompting short-covering activity.
As a result, the 10-year yield traded within a 19-basis-point range.
This contributed to a decline in the U.S. dollar, as well as a reduction in crude oil prices.
The euro and the pound were the principal beneficiaries of the U.S. dollar’s depreciation. Both currencies experienced a robust resurgence. This recovery was likely due by the covering of short positions on the euro in anticipation of the European Central Bank (ECB) meeting scheduled for Thursday, as well as the impending release of flash Purchasing Managers’ Index (PMI) data.
Despite this positive development in currency markets, equity markets did not reflect the favorable sentiment, as European markets prepared to start the session on a downward trajectory. Concurrently, geopolitical tensions continued to play a prominent role in the Middle East.
Also Read: The 10-Year Treasury Yield Surpasses 5%
Today’s Economic Agenda
Today’s economic agenda includes the release of October’s flash PMIs and the delayed UK unemployment data for the three-month period ending in August.
The Office for National Statistics (ONS) has warned that this data will be experimental due to discrepancies. Projections suggest the unemployment rate will remain at 4.3%, with employment dropping by around 198,000. A decrease in job vacancies, falling below one million, might impact the Bank of England’s interest rate decisions. The slowdown in flash PMIs, observed in September, could reinforce this impact, especially concerning the ECB’s discussions later in the week. In the U.S., flash PMIs are expected to be somewhat resilient, with a manufacturing PMI of 49.5 and a services PMI of 49.9.
currency markets on Bond Market Swing
In the currency markets, the EUR/USD currency pair successfully broke through the 1.0640 resistance level.
This potentially paves the way for an upward move towards the 1.0740 threshold.
Concurrently, GBP/USD advanced beyond the 1.2200 mark, with the prospect of further appreciation towards 1.2300 and a test of the 200-day simple moving average at 1.2400. Support levels remain stable at 1.2100.
The EUR/GBP currency pair saw a surge.
It reached the 0.8740 region in the previous week, subsequently retracing to find support at the 200-day simple moving average, currently residing at 0.8680. A breach below the 0.8680 level might signify a false breakout, potentially resulting in a return to the trend line support originating from the August lows, positioned at 0.8650.
In the realm of USD/JPY, the currency pair is currently facing resistance near the prior highs at 150.16. A decisive breach of this level would target 150.30, potentially paving the way for an upward move toward 152.20. Conversely, support levels are established at the weekly lows recorded at 148.75.
Market openings are anticipated with the FTSE 100 poised to commence trading, reflecting a 12-point reduction at 7,362. Similarly, the DAX is projected to initiate the session with a 28-point decrease, positioning itself at 14,772. In parallel, the CAC 40 is expected to open the trading day 12 points lower at 6,838.
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Disclaimer:
Please note that this article serves solely for informational purposes. As such, it is not financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.
