Crude oil and US stocks slide as Treasury yields soar
The price of crude oil tumbled during the American session as traders worried about dwindling demand later this year. The West Texas Intermediate (WTI) and Brent fell by more than 7% to $60 and $63, respectively. The market is being worried about the bumpy coronavirus vaccine rollout in Europe and the lockdowns that have been announced in some places. For example, the French government has announced new lockdowns in Paris while many countries have suspended the vaccine developed by AstraZeneca. Still, crude oil is up by more than 25% this year.
The US dollar rose sharply while US stocks declined as bond yields surged. The yield on the 10-year government bond rose to 1.71% while that of the 30-year rose to 2.4%. This happened a day after the Federal Reserve delivered its third interest rate decision of the year. The bank boosted the economic forecast for the year to 6.5% but said that the easy money policies will continue. It expects interest rate lift-off to happen in the next three years. However, the market is not convinced, with inflation expectation rising to the highest level in more than 10 years.
The Japanese yen was little changed today after the Bank of Japan (BOJ) delivered its interest rate decision. It also unveiled its biggest monetary policy review document since 2016. The central bank left interest rates at -0.10%, where they have been for years. Like the Fed, it also said that it will continue with its asset purchases program in its bid to support the economy. It will also continue with its yield curve control program. Elsewhere, the Russian Central Bank is expected to leave rates intact at 4.25% when it concludes its 2-day meeting today. The Canadian statistics office is also expected to report weak retail sales.
On Wednesday, the EUR/USD rose sharply to 1.1990 when the Federal Reserve delivered its interest rate decision. These gains were erased yesterday as investors reacted to rising Treasury yields. The pair is trading at 1.1910, which is slightly below the upper side of the bullish flag pattern. It has also moved from the 38.2% Fibonacci retracement to below 23.6% retracement levels. It is slightly below the 25-day moving average. Therefore, the pair may continue falling as bears target the lower side of the channel at 1.1880.
The XBR/USD pair reached a multi-year high of 71 this month. It then erased some of those gains yesterday when it declined to 61.1. On the four-hour chart, the price moved below the ascending yellow trendline. It also fell to the lowest level since March 2. It has moved below the 25-day and 50-day exponential moving averages (EMA) while the Relative Strength Index (RSI) moved below the oversold level of 30. While the pair may keep falling, another retest to the YTD high should not be ruled out.
The Nasdaq 100 index declined sharply to $12,800, which is substantially below this week’s high of $13,310. This decline happened because technology stocks are vulnerable during bond sell-offs. On the four-hour chart, the price has moved below the short and longer term moving averages while the Relative Strength Index (RSI) has moved to the oversold zone. Therefore, the index may keep falling as the bond market continues to defy the Fed.