US 10-year returns daily
Treasuries appear to want to test 4%.
Going back a few weeks, the 3.6% level was a recession trade, but with the US economy looking stronger now, it is safer to price the federal funds floor at 3% or 3.50%. Add in some terms a premium and 4% makes sense.
I expect some strong performances if 4% is touched as this is a FOMO level but the range in the 3.80-4.00% area looks convincing. It may turn to the upside from there, especially if China continues to provide stimulus and the price of oil continues to rise, which will reignite inflation fears.
The dollar is more tied to the front end but you can see similarities with USD/JPY as it is also testing the early August highs.
USD/JPY daily
I think we will take a break here as we wait for next week’s CPI report, but right now it is difficult to fight the US dollar.