This week was quite optimistic for bond markets: the largest winning streak for 30-year bonds of the US, as well as bonds of other countries, has shown that expectations of tight monetary policy might be already in the past.
The previous quarter was quite concerning for many financial institutions, as many banks have been holding large portfolios of bonds, and rising interest rates have been negatively affecting the balances of banks and other holders of government bonds. Any potential easing of monetary policy may immediately add relief for the markets, which had actually happened: we’ve observed rising Nasdaq and S&P500 indices and Gold. Above that, carry trade operations between the Japanese yen and other currencies usually get back in play.
Is the bond market overheated? It is a rhetorical question, while a practical question for a trader is whether Gold and other cyclical assets would continue their uptrends. When a big fundamental shift comes to the market, usually large amounts of money relocate back to stocks and metals as an alternative to bonds.
So, let’s try to highlight potential opportunities for cyclical assets for the upcoming week.
After a consolidation in a trading range between 2035 and 2050, Gold may finally be ready to break from a trading range and head towards 2065. The position of Gold is substantially higher than the 20-moving average below, which indicates that it moves very rapidly. It might be both a sign of an overheated market or a strong developing trend. Given the big shift in the bond markets, we may modestly assume the second scenario to be correct.
With the Japanese Yen getting under pressure amid rapidly decreasing yields of 10-year bonds of Japan, GBPJPY might continue to move in an uptrend. Technically, it’s well positioned at the dynamic support area and displays a strong responsive activity. So, it may bounce higher, if current fundamental narratives continue to develop.