Treasury Breakout Reshapes Markets: Gold Roars, USD/CHF Stumbles

• US bonds rip higher, 10-year yields dive
• Gold charges to fresh records, no topping signals yet
• USD/CHF cracks key support, downside risk builds
• Payrolls data the next big test

Summary

US long bonds staged a dramatic bullish breakout on Wednesday, sending benchmark 10-year Treasury yields careening to fresh year-to-date lows. With technicals aligning with restricted supply and signs of spluttering US economic data, the backdrop looks favourable for assets sensitive to long-term interest rates. This report will examine the implications for two key yield-sensitive plays: gold and the Swiss franc.

Bond Bulls Take Control

Before diving into the technical signals for those assets, we start with US 10-year Treasury note futures, one of the most liquid futures contracts globally. Like any price chart, technicals provide a useful tool to gauge directional risks for benchmark US Treasuries. And since bond prices move inversely to yields, the same applies to key US 10-year bond yields.

Source: TradingView

Wednesday delivered a definitive price signal, with futures surging through a key resistance zone on strong volumes. This was helped by signs of softening demand at US services firms and the US government keeping long-dated Treasury issuance unchanged in its quarterly refunding announcement (QRA), ensuring a restricted supply of long bonds relative to demand.

The price had been knocking on the door of this resistance zone for weeks, mirroring previous interactions in late December and early November when it acted as support. Some may describe the recent price action as an inverse head and shoulders pattern, but what matters is this breakout finally stuck. With RSI (14) and MACD flashing bullish momentum signals, risks appear skewed towards further gains ahead—meaning lower 10-year yields.

I've marked the next topside levels of interest on the chart, sparing you an explanation of bond pricing, which this scribe does not have time for right now! If those levels give way, there’s not much visible resistance until the swing highs from early December.

From a fundamental standpoint, Friday’s US payrolls report looms large following the breakout, with the unemployment rate and payrolls figure—including revisions—particularly important.

Long Bond Yields Matter for Markets

The broader market implications are captured in the chart below, tracking rolling 20-day correlation scores between US 10-year Treasury note futures and various markets across FX, stocks, crypto, and precious metals.

Source: TradingView

While not every asset has shown a strong positive or inverse relationship in the past month, many—such as the Japanese yen, Dow futures, and gold—have. Even though USD/CHF’s inverse correlation hasn’t been overly strong at -0.77, it’s significantly higher over longer timeframes.

USD/JPY was covered separately on Wednesday, with downside risks from compressing yield differentials playing out nicely. With nothing new to add there for now, focus instead shifts to high-flying gold and USD/CHF.

USD/CHF: Bearish Signals Stacking Up

Source: TradingView

USD/CHF is flashing multiple bearish signals on the daily chart, with Monday’s shooting star candle—formed after failing to break January’s highs—coinciding with further declines over the past two days, completing a three-candle evening star pattern in the process. 

The price is now hovering just above the 50-day moving average after breaking below uptrend support from late September. Given the 50DMA has often acted as a key level, a decisive break below it could accelerate downside risks. RSI (14) and MACD are reinforcing bearish momentum, adding weight to the deteriorating picture.

If USD/CHF breaks and closes beneath the 50DMA, those eying bearish setups could establish shorts beneath with a stop above former uptrend support for protection. The January low of 0.8966 stands as a near-term hurdle for those seeking better risk-reward, making it a key level to watch. Failure to break this minor support may require a rethink, but if it gives way, the door could open for a move towards 0.8900 where bids emerged in late December.

For those targeting a more extended move, the price saw plenty of action around 0.8800 in late 2024, putting that level in play. The 200DMA is another worth pondering.

Gold: Bulls in Control, No Topping Signals Yet

Source: TradingView

Gold has kicked off 2025 in full-blown bull mode, with falling US bond yields and a softening dollar acting like a pressure release for an already bullish setup.

While RSI (14) has entered overbought territory on the daily timeframe, recent history suggests that hasn’t been much of an obstacle for further upside. Both RSI and MACD are generating strong bullish momentum signals—something to be cautious of when chasing gains, but not outright bearish.

Rather than offering speculative extension targets, the preference remains to wait for a clear topping signal before scaling back longs or considering shorts. None are evident yet, and in the meantime, dips are likely to be bought.

Technically, there are few reference points at these levels, with support at the former record high of $2790 and potential resistance where Wednesday’s bullish thrust stalled.

-- Written by David Scutt

Follow David on Twitter @scutty

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