Chart Advisor: European Yields Reach New Highs

By J.C. Parets & All Star Charts

Tuesday, 28th February, 2023

1/ European Yields Reach New Highs

2/ Running With the Bulls

3/ More Losses for Grain Contracts

4/ Precious Metals Need Time

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1/ European Yields Reach New Highs

When we look outside the United States, we can clearly see it’s a rising interest rate environment around the globe.

While yields are climbing in the U.S., the upward trajectory for European yields is far more pronounced. The chart below displays 10 developed country European sovereign benchmark yields:

All 10 are either challenging or printing fresh multi-year highs. We looked to these rates for confirmation during last year’s historic rise in Treasury yields.

The analysis proved invaluable as the rising interest rate environment was global in scope, and Europe often gave a good indication for where U.S. yields were heading.

We see no signs of that changing any time soon. We could expect U.S. yields to follow suit to new highs over the coming days and weeks.

2/ Running With the Bulls

When it comes to international equities, the iShares MSCI Spain ETF (EWP) has emerged as a leader as it has rallied 42% from its October lows.

Buyers are in full control as prices coil in a bull flag above a critical Fibonacci retracement level. This continuation pattern could resolve higher in the direction of the underlying trend.

If and when this pattern resolves to the upside, we’re eyeing the 2021 highs near 31 as the next potential resistance zone.

3/ More Losses for Grain Contracts

Despite soft commodities showing impressive strength, grain markets continue to catch lower. 

Today, Chicago wheat futures contracts expiring in May posted fresh 52-week lows. Soybean futures dropped over 2%, while oat futures challenged their lowest level year-to-date.

The broad selling pressure also hit corn futures, as the May contract undercut its December pivot low.

The message suggests that risks could be to the downside.

The environment can change fast in any market, but particularly in commodities. We might want to be ready for a clear reversal higher. But for now, these contracts demand caution as bears take control.

4/ Precious Metals Need Time

The recent breakdown in silver speaks to a lack of risk-seeking behavior in the precious metals complex.

Silver is fondly called “gold’s crazy cousin” because it’s the higher-beta play. For this reason, precious metal bulls want to see silver advance on both absolute and relative terms.

We monitor the price of silver relative to gold to gauge risk appetite for precious metals. The overlay chart of gold futures and the silver/gold ratio illustrates why:

Silver’s bullish reversal relative to gold coincided with the yellow metal violating a significant downtrend line on absolute terms.

Buyers were entering the market, bidding up the riskier assets at a faster pace. That type of behavior bodes well for the entire space.

With silver breaking down both on absolute terms and relative to gold, we adjust our focus from overhead supply to potential support levels, as the risk could be to the downside.

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Originally posted 28th February, 2023