Global bond yields fall over fears that an economic recession is coming
Bond yield inversion
Bond yields across the globe continued to decline this week, as bond traders offered the strongest indication yet that a global economic recession may be coming. The US ten-year bond yield dipped below the yield of the three-month Treasury bill for the first time in over seven years, while German and Japanese 10-year bond yields continued to plummet. Traditionally when Treasury yields start invert, the bond market is offering a signal that an economic recession is nearing. Financial markets also become fearful about the economy when yield inversion occurs, as bank lending becomes more difficult when short-term rates are higher than longer-term yields
- The USDJPY pair is bearish while trading below the 110.90 level, key support is found at the 109.70 and 108.80 levels.
- If the USDJPY pair trades above the 110.90 level, buyers may test towards the 111.10 and 111.68 resistance levels.
RBNZ turn dovish
The New Zealand dollar fell sharply lower against the US dollar and the Japanese yen currency this week after the Reserve Bank of New Zealand struck a dovish tone towards future rate increases. RBNZ Governor Adrian Orr said that the next rate move would likely be lower, as below trend inflation and worsening global growth weighed on the New Zealand economy. The change in policy language was seen as a major shift for the New Zealand central bank, who previously held a neutral stance towards rates. The NZDUSD pair tumbled on the news, as traders priced-in a rate cut from the RBNZ coming as soon as the third quarter of this year.
- The NZDUSD pair is bearish while trading below the 0.6840 level, key support is found at the 0.6740 and 0.6685 levels.
- If the NZDUSD pair trades above the 0.6840 level, buyers may test towards the 0.6860 and 0.6890 resistance levels.
Brexit uncertainty increases
The British pound remained volatile against the US dollar, and the Japanese yen this week, as UK lawmakers failed to find a way forward for Brexit. British Prime Minter Theresa May signaled that she would step down as Prime Minister once she has delivered Brexit for the people of the UK. The House of Commons Parliament continued to reject the third vote of Theresa May’s Brexit plan, despite being unable to reach an agreement on an alternative Brexit deal. The GBPUSD pair struggled to find buying interest above the 1.3200 level and settled back toward the lower end of its medium-term trading range.
- The GBPUSD pair is bearish while trading below the 1.3100 level, key support is found at the 1.2975 and 1.2660 levels.
- If the GBPUSD pair trades above the 1.3100 level, key resistance is found at the 1.3260 and 1.3388 levels.
Lira’s woes continue
The Turkish lira fell against the US dollar this week after the Central Bank of the Republic of Turkey attempted to raise transaction costs in order to stop speculators short selling the nation’s currency. Traders looked past the action and sold the Turkish lira, as data revealed that the central bank had lost ten billion US dollars in currency reserves in just three weeks. The Turkish lira had plummeted by over five percent last week against the greenback, over fears about continued economic stresses inside emerging market economies.
- The USDTRY pair is only bullish while trading below the 5.6454 level, key resistance is found at the 5.8445 and 6.1000 levels.
- If the USDTRY pair trades below the 5.6454 level, sellers may test towards the 5.4220 and 5.2200 support levels.