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US 10-year treasuries climbed as China lifted the visitor quarantine

December 28, 2022

US stocks fall to start the final week of 2022 trading. Tesla Inc. shares led to losses as a report of a plan to temporarily halt production at its China factory rekindled fears about demand risks. Besides, Apple Inc. touched the lowest since June 2021 amid a slump in big tech. Moreover, Southwest Airlines Co. led declines in airline stocks after cancelling flights, hobbled by a massive winter storm that battered the US.

The yield on 10-year Treasuries climbed 10 basis points to the highest since mid-November, as China moved to end the quarantine for inbound visitors.

The benchmark, the S&P 500 fell with 0.40% daily losses with trading about 20% below the 30-day average. Six of eleven sectors of the S&P500 stayed in the negative territory, and the Consumer Discretion section got the worst performance among all groups, recording 1.64% losses daily. Apart from this, the tech-heavy Nasdaq underperformed, dropping more than 1%. The Dow Jones Industrial Average surprisingly edged higher by 0.1%, and the MSCI world index moved lower by 0.1% for the day.

Main Pairs Movement

The US Dollar index edged lower on Tuesday, as trading volume is low with investors just coming back from the Christmas holidays. The DXY index hovered in a narrow range from 103.9 to 104.4 during the first trading day of the last week of this year.

The GBPUSD stayed on the defensive since the UK trading session, with China announcing earlier in the day that it will lift quarantine obligations for travellers from January 8 as part of its reopening efforts. The pair dropped around 0.78% in the period of European trading hours. In the meantime, the EURUSD was pricing with wild moves on Tuesday. The pair dropped hugely ahead of the US trading hour but managed to erase most losses and ended with a 0.03% daily gain.

The gold is benefiting from recent positive headlines surrounding Beijing. China’s easing of the Coronavirus-linked activity restrictions joined an upward revision to the 2021 GDP forecast to favour gold bulls amid a sluggish holiday season. The XAUUSD surged and once climbed above the $1830 mark in the early American trading session, then pullback and ended with a 0.86% daily gain on Tuesday.

Technical Analysis

EURUSD (4-Hour Chart)

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EURUSD edged higher on the first day of the holiday-shortened trading week. The Euro fared better against the Dollar as market participants continue to sell the Greenback while U.S. interest rate expectations trim lower. Furthermore, the Dallas Fed’s December Texas Manufacturing Outlook Survey indicates a further drawdown of business activity and demand, thus prompting market participants to ditch the U.S. Greenback as markets lower interest rate expectations from the Fed.

The lowered business activity indicator furthers the recession rhetoric as markets brace for pending economic slowdown. On the economic docket, no major data releases are scheduled for the E.U., while the U.S. will release its pending home sales figures during today’s American trading session.

On the technical side, EURUSD continues to trade below our previously estimated resistance level of 1.065, but the pair has witnessed a steady upward momentum over the past four days. A new short-term support level around the 1.0585 price region. RSI for the pair sits at 56.95, as of writing. On the four-hour chart, EURUSD currently trades above its 50, 100, and 200-day SMA.

Resistance: 1.0650, 1.0695

Support: 1.0580, 1.0500, 1.0459, 1.0228

GBPUSD (4-Hour Chart)

GBPUSD edged lower on the first trading day of the week. Cable has been trading extremely range-bound over the past 3 trading sessions as the year ends. The British Pound continues to be plagued by the U.K.’s economic outlook and inflation; however, losses for Cable should be contained as no significant market-moving news is scheduled before 2023. The U.S. Greenback has shown weakness over the holiday weekend as China loosened its Covid restrictions and prompted a gain for the CNY.

The Dollar index lost 0.2% throughout Tuesday’s trading. While the U.S. 10-year treasury yield has resumed above 3.8%, market participants are not piling into U.S. treasury bonds as they expect flows to favour the equity market. On the economic docket, the U.K. has no significant news scheduled for the 28th, while the U.S. will release its pending home sales figures for November during the American trading session.

On the technical side, GBPUSD continues to trade below our previously estimated resistance level of 1.232. A steady downward trend has formed for Cable over the past week. The short-term support level for Cable remains at around the 1.19 and 1.176 price region. RSI for the pair sits at 43.51, as of writing. On the four-hour chart, GBPUSD currently trades below its 50, 100, and 200-day SMA.

Resistance: 1.2320, 1.2600

Support: 1.19, 1.176

XAUUSD (4-Hour Chart)

After dropping toward $1,800 in the early American session on Tuesday, yellow metal prices hiked nearly 1.9% up to a fresh December high of $1,833 during the intraday trading. The markets’ atmosphere started the week in an optimistic mood amid news from China, which is the biggest country producing gold, indicating that the local government will focus on economic growth, further moving away from its zero-covid policy. Meanwhile, the 10-year US Treasury bond yield holds positive territory above 3.8% but does little to nothing to derail the gold price’s rally.

On the technical side, according to the four-hour chart, technical indicators head north almost vertically, although the Momentum stands at neutral levels, while the RSI is near overbought readings. At the same time, XAUUSD has accelerated north after meeting buyers around a flat 20 SMA, currently at $1,805, which remains above the longer ones. RSI sits at 64.28 as of writing. On the four-hour chart, gold price trades above its 50, 100, and 200-day SMA.

Resistance levels: 1833, 1845, 1864

Support levels: 1812, 1805, 1792, 1785

Economic Data

CurrencyDataTime (GMT + 8)Forecast
USDPending Home Sales (Nov)23:00-0.8%