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The market is slowly putting behind it Monday’s risk selloff as equities gained and 10-year Treasury yields rebounded back to 1.28%.
As such, the squeeze looks to be one that is short-lived as the market readjusts but the coast isn’t clear yet one might argue. The trend in the bond market over the past two months is still not a pretty one and COVID-19 fears aren’t going away just yet.
The spread of virus variants in particular may exacerbate the latter factor and that could be a risk that could lead to some added retreat in risk trades from time to time in Q3.
For now though, there are some decent trades holding at key technical levels. Oil is one that managed to hold at its 100-day moving average at around $66.10-20 and is now back above the $70 mark.
Meanwhile, CAD/JPY also showed technical resilience at the 21 April low of 85.42, suggesting a double-bottom bounce now as it trades up to 87.50 today.
Those have been two good “fade trades” to the Monday move but the propensity for it to continue will largely depend on whether risk sentiment can hold up further towards the end of the week, or if we’ll be in for another messy session ahead.
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