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It's Risk On in Bond Land, but Currencies Are Sending Caution Signals


For months now, the global bond and currency markets have been very much in unison in singing a bullish tune for risk assets -- but not as much right now.

The recent poor trading in emerging markets debt (shown here recently via iShares Morgan Stanley USD Emerging Markets Bond ETF (NYSEARCA:EMB)) and now some "iffy" action in two of our key currency gauges are the first signs in a long while that aren't 100% bullish. The aggregate message from the bond charts I follow still remains bullish. However, the same cannot be said of the key currency charts I follow.


Emerging markets debt remains troubled as it trades below resistance.

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The EMB is still working to even break above the first of two key resistance levels in the short-term. The fund broke down below its 14-day moving average at the beginning of this month and showed some follow through to the downside even as other risk assets were doing well. The fund has bounced a bit over the last week or so. However, it needs to close above not only its moving average resistance, but also above the "correction resistance" line (created by the 100% Fibonacci projection line) at $122.49 to regain a bullish technical position.

Treasuries have yet to chime in on the bearish side.

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Unlike EMB, the yield on the 10-year US Treasury Note (INDEXCBOE:TNX) has yet to really show any signs of coming problems for risk assets. I'm still of the opinion that yields will be rising to above 2% at some point soon – either because the risk rally continues or because inflation starts to spark up. Only a close in TNX below 1.775% would really alter my outlook for yields at this point.

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It's the same story flipped upside down for the chart of the Futures on the 10-Year Treasury Note (@TY). They won't be singing anything but a bullish tune for risk assets unless the "correction resistance" level (show in bright red lines on the chart) at 132'23.0 is violated on the upside.
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