In early September, we discussed how the yield curve briefly turned negative. The yield curve we referenced was the difference between the U.S. 10-year yield and the U.S. 2-year yield. Why was this such a big deal? Because on the last 7 occasions, it led to a recession (however the recessions were 6-9 months later). At the time, we compared the price action of the inverted yield curve to the price action in WTI Crude oil from Q4 of 2019. We considered the possibility that after selling off and bottoming, the yield curve may form an Inverted Head-and-Shoulders pattern and a move back to the 61.8% Fibonacci retracement level of the entire move lower, just as WTI Crude oil had done in Q4 of 2019.
Source: Tradingview, FOREX.com
A month and a half later, the U.S. yield curve has reached the 61.8% Fibonacci retracement level, met the target level for the inverted head and shoulders pattern, and put in a bearish engulfing pattern yesterday on the daily chart.
Source: Tradingview, FOREX.com
Where does the yield curve go from here? Let’s first look at the daily WTI crude chart, which had a false price breakout above the 61.8% Fibonaccci retracement level and pulled back, forming a wide consolidation channel between 50.50 and 63.80. Today, 6 months after the start of the channel, WTI Crude oil is still trading within that channel, mean reverting around the 200 Day Moving Average. However, price did test the lows 4 times.
Source: Tradingview, FOREX.com
If we focus on the price action in WTI Crude Oil as it pulled back after reaching the highs on April 23 at 66.48, we see that price pulled back to the 61.8% Fibonacci retracement level from the lows on December 24 to the highs on April 23 and put in a double bottom. This low defined the bottom of the channel, within which price currently trades.
Source: Tradingview, FOREX.com
Now, if we theorize that the U.S. Yield Curve will act in the same manner as WTI Crude oil, we can look for the U.S. yield curve to pull back to the 61.8% Fibonacci retracement level from the August 27 lows to yesterday’s highs, which is 0.038.
Source: Tradingview, FOREX.com
If the U.S. yield curve does pull back to that level, what happens next? Will it head into negative territory again?
Let’s take one step at a time – but keep an eye on WTI Crude Oil for clues!
Useful info. Fortunate me I found your site accidentally, and I am surprised why this coincidence didn’t happened in advance! I bookmarked it. Ronda Abdul Margeaux
I want to show some appreciation to this writer just for bailing me out of this particular scenario. Because of looking out throughout the world wide web and seeing strategies that were not helpful, I believed my life was well over. Being alive without the strategies to the issues you have fixed as a result of your good review is a critical case, and those which might have adversely affected my career if I had not discovered your blog. That mastery and kindness in controlling all the pieces was very useful. I’m not sure what I would’ve done if I had not encountered such a subject like this. It’s possible to at this point relish my future. Thanks for your time so much for this professional and effective guide. I won’t think twice to endorse the website to anybody who needs and wants counselling about this subject.
I was excited to discover this website. I want to to thank you for your time for this wonderful read!! I definitely liked every part of it and i also have you book-marked to look at new things on your website.
I needed to compose you that tiny observation just to give many thanks over again with the pleasant principles you’ve contributed on this site. It has been quite particularly open-handed of you to allow unreservedly exactly what many individuals would’ve made available as an ebook to end up making some bucks for their own end, especially considering the fact that you might have done it if you decided. The inspiring ideas likewise acted to become good way to fully grasp that someone else have the same dreams just like my own to understand way more with respect to this problem. I’m sure there are a lot more pleasant instances up front for people who take a look at your blog post.
I must voice my appreciation for your generosity giving support to folks that really need guidance on this niche. Your special commitment to getting the solution around has been amazingly important and has continuously encouraged girls just like me to get to their desired goals. This invaluable key points entails much a person like me and even further to my office workers. With thanks; from all of us.
I wanted to write a small comment to say thanks to you for all the pleasant hints you are showing at this site. My extensive internet investigation has now been compensated with reliable facts and techniques to talk about with my guests. I ‘d say that many of us visitors are really lucky to live in a decent website with very many marvellous individuals with good principles. I feel very much happy to have encountered the webpage and look forward to really more excellent moments reading here. Thanks a lot once again for a lot of things.
Nice post i like it 100 %. I learn something new and challenging on sites I stumbleupon on a daily basis. Its always helpful to read through articles from other writers and use something from their web sites.