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Bonds Still Friendly to the Bulls; Currencies Are Close, but Not Quite There Yet


Bulls are claiming victory in certain of our key tells, but the game isn't quite over yet.

MINYANVILLE ORIGINAL Since last week's article, the bullish action in emerging market debt and domestic high yield debt has continued pretty much unabated. Meanwhile, Treasury yields continue to hover bullishly above key support – good for the bulls as well. And, while the action recently has been great in currency land, the key risk currencies still have to conquer key resistance levels to convince the last doubters. Let's go to the charts to view the evidence.


The euro has been a big tailwind for risk assets over the last couple of weeks – will it continue?

The euro / US dollar cross (EURUSD) ran right up to short-term resistance – dual resistance in fact – created by the peak on 11/26 and the 100% Fibonacci price projection line for what appears to me to be an "abc" correction on the 10-minute chart below. Only a close above the 1.30082 to 1.30124 range will negate this rather bearish set-up and open up more upside in the short-term.

Click to enlarge

The daily chart below gives us a bird's eye view of where we are with the EURUSD. Based on what I am seeing here, it looks like the most recent upside in the EURUSD was just a corrective second wave higher. If I am correct on that point, then we should see the EURUSD commence a pretty nasty little third wave move to the downside with a target of 1.24254. There are plenty of hurdles for the bears to clear on this trade, however – the first being support at 1.28128.

Any close in the EURUSD above the 1.30124 level will open up more upside potential – perhaps up to the October intra-day peak at 1.31386.

Click to enlarge

The Aussie dollar / US dollar cross nearing key resistance after clawing its way higher since October.

The AUDUSD is running right into the upper edge of a pennant formation on the daily chart below. There is certainly more resistance above the blue downtrend line – namely the longer-term red downtrend line. However, the cross is clearly having to struggle to get through even the lower blue downtrend line. A failure here (which I would be able to call if the cross closed below 1.04164) will likely lead to a test of the blue uptrend line on the chart in short order.
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