Long-term US Treasury yields are rising as investors oppose the expansion of government spending, but Tim Baker of Deutsche Bank warns that if fiscal concerns persist, the dollar could ultimately pay a much higher price.
This week, the yield on 30-year US Treasuries soared by more than 5%, reaching its highest level since 2023. This came after intense debate within the Republican Party over President Donald Trump’s signature tax bill, which was ultimately passed on Thursday morning. The bill is expected to increase the US debt burden. During the debate on Capitol Hill, the Deutsche Bank index, which measures uncertainty in US fiscal policy, hit a record high.
In a report, Deutsche Bank’s macro strategist Baker wrote: “As the government shows little willingness to reduce the deficit, bond yields have been on the rise. For domestic investors, these yields may start to become attractive as they may be more capable of bearing fiscal risks than foreign investors.”
Although the dollar’s rally slowed on Thursday, the 30-year Treasury yield still rose to 5.15% at one point, continuing its steady upward trend this month. The dollar has already absorbed the early market reaction after Moody’s downgraded the US credit rating last Friday.
The Bloomberg Dollar Index fell nearly 1% this week and has dropped more than 7% so far this year, marking the worst start to a year since records began in 2005.
Baker said, “As domestic investors pull out of the stock market, US Treasuries may eventually gain some support, but the withdrawal of foreign investors will still have a negative impact on the US dollar.”
Options traders are bracing for further weakness in the dollar. This week’s contracts, which measure the overall direction of the dollar over the next month, show that bearish sentiment has reached its highest level in five years since the pandemic swept through global markets in March 2020.
Beck said, “Even if domestic investors support US Treasuries at some point, the dollar will still decline because foreign investors are no longer firmly buying them.”
Technical analysis:
Gold: Yesterday, the position where we inserted the yellow alert was perfect. After the price broke through the lower yellow line and swept the liquidity, it returned to the upper line for a buy stop and then rose all the way above 3310, achieving a 2:1 profit-to-loss ratio. For today’s trading, we will protect the overnight long position and continue to pay attention to the defensive arrangement of buying after a breakthrough and pullback, as well as sweeping the liquidity at a lower position. For detailed positions, please consult the plugin.
(Gold 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and note “666” in the message.
Nasdaq: Yesterday, we clearly reminded in the plugin that even if there was a price breakthrough, one should not chase the long position but consider the reverse operation after the yellow area’s liquidity is swept. The price performance was exactly as we expected in the yellow area. For today, we continue to keep the yellow area and also closely monitor the short opportunity at the recent price level (red area). For detailed positions, please consult the plugin.
(NASDAQ 15-minute chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the chart, please contact V: Hana-fgfg and note “666” in the message.
Crude oil: After the liquidity sweep yesterday, the price did not complete a strong rebound but instead got stuck in a narrow range near 61.30. Today, we need to wait for a signal of momentum breakthrough before attempting subsequent long positions. For detailed positions, please consult the plugin.
(Crude Oil 15-Minute Chart)
The plugin is updated from 12:00 to 13:00 every trading day. If you want to experience the same plugin as shown in the picture, please contact V: Hana-fgfg and note “666” in the message.
Today’s key economic data and events to focus on:
14:00 Germany’s revised seasonally adjusted GDP for the first quarter (quarterly rate)
20:30 Canadian March Retail Sales (MoM)
At 21:35, St. Louis Fed President Musalem and Kansas City Fed President Schmid will participate in a fireside chat event hosted by the St. Louis Fed in Northwest Arkansas to discuss the economy and monetary policy.
22:00 US New Home Sales for April (Annualized Monthly Rate)
