The U.S. Dollar is soaring on Monday, driving the Euro sharply lower. The catalysts behind the move is a jump in the 30-year U.S. Treasury yield above the psychological 3% level. Bonds and notes are also moving on an international scale. The German 30-year Bund yield topped 1 percent for the first time since early May and the Italian 10-Year yield broke above 2-percent for the first time since September 2015.
The EUR/USD’s price action suggests that investors are betting on a major shift from a global economy based solely to monetary policy to one based on fiscal policy. And yes, there is the potential for a crash in the debt markets if they move too swiftly. Investors are selling out of positions fast.
Later today, investors will be able to hear what Federal Reserve member have to say about this new market catalyst for T-Bonds. Dallas Fed President Rob Kaplan is due to speak at 1820 GMT, Richmond Fed President Jeffrey Lacker is on a panel moderated by CNBC’s Rick Sanelli at 2130 GMT and San Francisco Fed President John Williams is speaking at 2330 GMT.
There are no major U.S. economic report today so traders will continue to focus on the direction of the U.S. Treasury yields.
The main trend is down according to the daily swing chart. The market is accelerating to the downside after crossing recent swing bottoms at 1.0850 and 1.0821. Both should be considered resistance. Earlier today, the selling pressure also took out the January 21 main bottom at 1.0777.
The next target on the swing chart is the January 5 bottom at 1.0710. The market opens up to the downside under this levels with potential targets the December 3, 2015 bottom at 1.0539 and the April 13, 2015 bottom at 1.0528.
Based on the current price at 1.0766, the direction of the EUR/USD the rest of the session is likely to be determined by trader reaction to 1.0777.
A sustained move over 1.0777 will indicate that counter-trend buyers are coming in. This is followed closely by a steep downtrending angle at 1.0819 and a long-term uptrending angle at 1.0841. If short, I’d start getting concerned if buyers take out 1.0841.
A sustained move under 1.0777 will indicate the presence of sellers. The next target is 1.0710, followed closely by 1.0688.
The angle at 1.0688 is very important because a move through this level could trigger the start of a steep break with the next targets 1.0539 to 1.0528.
Watch the price action and read the order flow at 1.0777 the rest of the day. This should tell us if the selling pressure is increasing or if buyers are stopping the price slide.