To The Moon

Recently, the broader market and most asset classes have remained locked in a relatively measured, range-bound tug-of-war. Inflation and rate-hike discussions have driven short-term volatility, but they have not triggered any meaningful change in the overall trend. Meanwhile, in a less closely watched corner of the market, the 10-year U.S. Treasury yield has gradually climbed back toward the highs of the previous tightening cycle. If bond prices lose further control from here, both the Federal Reserve and the market itself could face significant challenges.

In theory, changes in U.S. interest rates drive fluctuations in Treasury prices and, in turn, movements in Treasury yields. In other words, policy rates should serve as the anchor. This year, however, long-dated Treasury yields have clearly moved ahead of policy expectations. The 10-year yield not only decisively broke above its downward trendline in July, but has subsequently moved very close to 5%. This level marks not only the peak of the previous Fed tightening cycle, but also the range seen before the 2007–08 financial crisis.

Treasury prices and Treasury yields have a classic seesaw relationship: stronger demand for Treasuries pushes yields lower, while weaker demand—or sizeable episodic selling pressure—drives yields higher. Persistently elevated yields not only increase the U.S. government’s debt-servicing burden, but also indirectly signal investors’ growing reluctance to hold Treasuries and their concerns about the market. This also explains why the U.S. Treasury moved prominently to repurchase Treasuries last month. Without stepping on the brakes, the situation could potentially become unmanageable before Waller formally presses the button on rate hikes.

Many market participants have interpreted the Treasury buyback as a market-rescue measure. In our view, that interpretation is not entirely accurate. There are currently no signs of a market collapse, nor is there a genuine need for a rescue. The move looks more like a short-term, cyclical “vaccine”: it may help stabilize the market for a period of time, but it is by no means a cure-all.

Returning to the market itself, long-term Treasury yields have not shown a clear trend reversal even after the Treasury’s intervention. This demonstrates that the underlying problems run much deeper than what a single intervention can resolve. After the U.S. failed to achieve a quick success in its move against Iran during the first quarter of this year, the erosion of its absolute dominance has already hinted at the challenges it may face in both interest rates and exchange rates.

Looking ahead, if the upward trend in yields cannot be reversed, investors should remain alert to the possibility that rate hikes could arrive earlier than expected. This week, the market-implied probability of a rate hike by late September has remained close to 60%. If the next inflation reading shows renewed price pressure, the probability of a hike could increase further. Should a rate hike occur this month, the downside room and risk for risk assets would expand materially.

In addition, although rate hikes are theoretically supportive of the U.S. dollar, turmoil in the bond market is fundamentally negative for the dollar. As a result, it cannot be ruled out that a “buy the rumor, sell the fact” reaction could instead push the dollar lower. On the U.S. Dollar Index chart, the key long-term 10-year trendline has once again come into view. A break below it would imply at least another 10% of downside. Such a significant depreciation in the exchange rate would undermine the attractiveness of dollar-denominated assets across the board. We remain bearish on the dollar’s longer-term direction, although whether a breakdown will materialize in the near term remains highly uncertain. We will continue to monitor developments as they unfold.

Trading Strategy This Week

• EUR futures: The previous long position was filled at 1.1420. As the recent move developed, the stop-loss had already been raised to 1.1570. That level was not breached last week. The bullish targets remain unchanged at 1.1770 and 1.2420, with half of the position to be taken off at each target.$欧元主连 2609(EURmain)$ $欧元指数(EURindex.FOREX)$

• Crude oil: Continue holding the long position, with an average entry price of 75. The stop-loss was previously moved to the entry level to ensure the trade is protected from a loss, although a stop below 74 would likely be more consistent with the trade structure. Targets remain unchanged at 95 and 115, with half of the position to be taken off at each target.$WTI原油主连 2610(CLmain)$ $小原油主连 2610(QMmain)$ $微型WTI原油主连 2610(MCLmain)$

• Gold: Neither the long nor short setup was triggered last week, so the pending orders remain in place this week. Maintain limit sell orders at 4,830 and 5,170, with half of the position at each level; set the stop-loss at 5,275 and the target at 4,000.$黄金主连 2612(GCmain)$ $微黄金主连 2612(MGCmain)$ $1盎司黄金主连 2612(1OZmain)$

• Buy-on-dip order: Place a limit buy order at 4,265, with a stop-loss at 4,065 and a target at 4,765. This long-entry order is valid for this week only.

• Other opportunities: Crypto assets may still offer directional signals worth monitoring, but the current risk-reward profile for actual trades is not particularly attractive.

P.S. Once a trade reaches its first target, the stop-loss will automatically be moved to the entry price. Any adjustments after an order is filled will be updated in subsequent articles.