Bonds

USD/JPY bulls are on the back foot as US bond yields retreat, triggering a key technical break. With Scott Bessent’s bold fiscal plan easing fears and Fed rate cut bets fading, the pair now skews firmly to the downside.

It's not every day you see gold plunge alongside yields. But that is what Monday served on reports of a potential ceasefire in Gaza and Trump's picking a relatively 'safe pair of hands' for the US Treasury Secretary role. With a prominent swing high on gold, I suspect it could be headed much lower from here.

Another day, another handle for USD/JPY which rose to a fresh multi-decade higher. Bond yields also continued to rally after the Biden-Trump debate, which has markets concerned that a more inflationary presidency under Trump seems the more likely outcome.

If the 2-year yield is right, it suggests the USD could be set to rise over the near term. And I suspect that PCE inflation could be the trigger. For now, risk off tones are in the air.

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Bond markets make the financial world go round, helping to grease the wheels of commerce, allowing the economy activity to expand. But when too much debt is issued, it can overwhelm demand, causing borrowing costs to spike which can be detrimental to the economy.

The suspected intervention from the BOJ this week has changed the game for USD/JPY, placing a rather large barrier in the way of further upside at a time when US bond yields were already looking toppy.

The US 2-year bond yield remains support, which is capping the yield at 5% and weighed on the US dollar. And that helped AUD/USD rise for a second day ahead of a key AU CPI report.

EUR/USD futures traders are on the cusp of flipping to net-short exposure, and managed funds are increasing their short exposure to gold and crude oil.

The US dollar has risen around 6% from the late December low. And with bond prices approaching support which could send yields lower, the US dollar rally could at least find some headwinds - if not a retracement.

Bond markets make the financial markets go round, so when they provide a strong signal on how Wednesday’s US consumer price inflation report may be interpreted, every trader should sit up and take notice.