US Long-End Yields Pause not Reversal
The long-end bond price rallied on Tuesday and early Wednesday, indicating a potential fall pause at the critical support. Additionally, AUSDUD followed NZDUSD's decline, was impulsive, and the AUDUSD broke the H&S neckline.
It's uncommon for higher US long-end yields and lower AUDUSD to go in different directions unless it's due to pure short-end yield differential, which is unlikely.
I would not take the “one is wrong” approach, and we are more likely facing an unknown-unknown situation. If forced to make an assumption, I would say that the AUD is related to China.
Ultra-Bond
A follow-through from Ultra-Bond Futures, USDCNY, and Dollar Index 16th May 2023 Substack note.
The triangle pattern has been broken, and support levels have been confirmed, indicating that the following extension and area for a significant pause is 126'01. The pause we are currently experiencing should only be temporary.
The Equal Extension target is at 113'13.
30-Yields downside should be limited to 3.88% in the worst case, 3.82 (also the stop loss). This is most likely a pause before yields head towards 4.30%.
The triangle extension target is 5%.
AUDUSD
Commodity Currencies Set to Lead the Next Phase of US Dollar Strength
Asian currency pairs have led to broad US Dollar weakness, but the commodity currencies AUD and NZD are set to lead the next phase. Given the setups in China's equity indices, concerns about industrial commodities demand will likely be central to the move.
I expect the move to be impulsive after pausing on the momentum this week.