U.S. Real Yields Signaling Weakness May Deal Dollar Another Blow

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The Big Takeaways From the Latest FOMC Minutes

U.S. real yields may be headed lower after decisively completing a technical chart pattern, potentially dealing another blow to the dollar after the Federal Reserve’s meeting minutes showed members were concerned about currency appreciation.

Inflation-adjusted yields on 10-year bonds in the U.S. have broken below a wedge pattern that had capped its range for almost a month. Any downtrend could spur the yen, which has a negative correlation of 0.94 with real yields.

On the charts, focus on the 10-year U.S. real yield, now around 0.35 percent, shifts to 0.30 percent and then 0.21 percent, with the latter representing the 61.8 percent Fibonacci retracement of the move from July to December.

The rejection of the 50-day moving average on the upside earlier this month reinforces the outlook for real yields.