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Welcome to Technical Tuesday, a weekly report where we highlight some of the most interesting markets that will hopefully appease technical analysts and traders alike.

In this week’s report, we are getting technical on the Nasdaq, 10-year US bond yields, WTI, and the Guppy. So, there is something for everyone.

• Nasdaq drops to test key support as yields press higher
• WTI on slippery slopes
• GBP/JPY breaks out
   

Nasdaq drops to test key support as yields press higher

Bond yields have been climbing higher again in recent weeks, undermining zero-yielding gold and silver, while also weighing down on low-dividend-yielding stocks in the US. The fact that today’s PMI data from the US also topped expectations, further boosted bond yields and paradoxically weighed on the stock markets.

Policymakers at the FOMC have again become quite vocal about more rate hikes and high rates for longer in recent weeks, owing to a tight labor market and stronger-than-expected inflation data, with CPI and PPI both surprising last week. Fed's Mester and Bullard were characteristically hawkish on Thursday and floated the idea of more aggressive 50bp rate hikes, although we don’t necessarily think that will be required. More hawkish Fed comments continued on Friday, this time from Barkin and Bowman, although the fact they didn’t say anything dissimilar to the other Fed officials, the dollar bulls decided to buy Friday’s dip.

But the new week has started on a downbeat note, with the major indices all giving up Friday’s gains and some.

Will the dip buyers show up again and save the day, or is this a turn in the tide? At the time of writing, the Nasdaq had dipped 1.3% into THIS key support area shown on the daily chart:

Source: StoneX and TradingView.com

As can be seen, the area between 12100 to 12200 was resistance in the past, but it now needs to hold as support to confirm that bullish breakout we saw at the start of the month. Failure to do so could see the Nasdaq drop to test its 200-ay average or even go lower. We would turn decidedly bearish if the last low pre-breakout at 11818 gives way. Until that happens, we will remain neutral at these levels.

What the Nasdaq and indeed gold etc., will do next may depend on how much further will bond yields rise. At the time of writing, the US 10-year yield was testing the session highs above 3.905%, the December peak. A clean break above this area would be rather bullish, and bearish for risk assets like the Nasdaq. However, if yields go back below Friday’s low at 3.815% then this would be precisely what the stock market bulls would be hoping to see.

Source: StoneX and TradingView.com
 

WTI on slippery slopes

Oil prices have been going sideways for several weeks now, without really committing to any particular direction in a meaningful way. This is reflected by the 21-day exponential moving average flattening. On Friday, WTI broke below key short-term support around $77.65 after oil prices struggled all week to go higher following a massive 16.3 million barrels built in US oil inventories. This level has now turned into resistance, thus keeping oil prices on a slippery slope. Unless the bulls reclaim $77.65 on a daily closing basis in the coming days, the path of least resistance would remain to the south and as such, a move towards the range lows should not be ruled out.

Source: StoneX and TradingView.com
 

GBP/JPY breaks out

The pound has been among the strongest of currencies today, while the yen has been among the weakest. The GBP/JPY broke out of key resistance area around 162ish after the publication of strong UK PMI numbers earlier today. We have been warming towards JPY pairs on the long side in recent weeks after the BoJ’s new Governor suggested there won’t be much change to the ongoing loose monetary policy in Japan.

Following the breakout above 162.00, the GBP/JPY extended its gains and reached the 200-day average around 163.30 before pausing for a breather. Can it possibly reach 165+ in the days ahead?

The bulls will now need to defend their ground if we get a retracement back to the breakout area of around 162.00 (specifically 162.20 to 161.75).

They will be happy for as long we now don’t go below this week’s low, for that will clearly invalidate the bullish breakout and provide the bears' reason to step back in.

Source: StoneX and TradingView.com

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