10-Year US Treasury Yield Returns Above 5%, Highest Since 2007

By: Jerry Chen, Senior Analyst, GAIN Capital

Oil prices and U.S. Treasury yields rose sharply on Wednesday, cooling risk sentiment and triggering a broad pullback in risk assets. Gold fell below the $4,300 mark, further weakening its short-term technical outlook.

Persistent Inflation Pressures Push 10-Year Yield Above 5%

Following hawkish remarks by Iran's President at the United Nations General Assembly, WTI crude and Brent crude futures ended a five-day losing streak, recovering to above $92 and $100 per barrel, respectively. Although international oil prices have yet to break previous highs, the average price of diesel in the United States has exceeded $6.50 per gallon, keeping inflation pressures elevated.

Meanwhile, the S&P Global U.S. Composite PMI for September surged well above expectations to its highest level since July 2021, further fueling inflation concerns.

Driven by rising oil prices and stronger-than-expected economic data, the U.S. 10-year Treasury yield returned above 5%, reaching its highest level since 2007. Additionally, Wednesday's auction of five-year U.S. Treasury notes saw unusually weak demand, pushing yields across maturities—including the five-year—sharply higher.

The combination of rising inflation pressures and a resilient economy (particularly the labor market) has prompted several Federal Reserve officials to signal the possibility of further rate hikes. Interest rate markets now price in approximately a 68% probability of a rate hike in October and a 94% probability by year-end—both higher than last week—weighing on global risk assets on Wednesday.

Risk Sentiment Cools; European and U.S. Stock Markets Decline

All three major U.S. stock indices closed lower on Wednesday. As enthusiasm around AI-related stocks faded, the Nasdaq retreated from its historical highs.

The Nasdaq 100 index pulled back the previous day, which is considered a correction within the prior uptrend structure. Key technical levels to watch include the 30,100–30,330 range and 29,840 (daily pivot S3).

Note: The above is an objective record of technical patterns and does not represent future performance or constitute any trading advice. The index's future direction depends on changes in oil prices, interest rate expectations, and capital flows, and is subject to significant uncertainty.

Chart: NASDAQ 100 (4-hour) Source: TradingView

Strong Dollar Returns; Euro Falls to Near Two-Month Low

The U.S. Dollar Index held above the 101 mark on Wednesday, continuing to hit new highs not seen in nearly two months. Rising oil prices and expectations of further rate hikes jointly supported the dollar's strength.

USD/JPY closed above the 158 level on Wednesday. Key technical levels to watch are 157.80 and 160.

Note: The above is an objective record of market phenomena and does not represent future performance or constitute any trading advice.

The euro fell to its lowest level since late July. The key downside technical level to watch is 1.1360.

Note: The above is an objective record and does not constitute any trading advice.

Chart: EUR/USD Source: TradingView

Gold Weakens in the Short Term

A strong U.S. dollar and high yields are already putting fundamental pressure on gold prices, and the technical outlook for gold is equally concerning.

Chart: XAU/USD (1-hour) Source: TradingView

The bearish alignment on the 1-hour and 4-hour charts is more pronounced than in previous trading days. The RSI indicator is weak but has not yet reached oversold territory. Key downside technical levels to watch are 4,276, 4,260, and 4,230.

The weekly pivot point at 4,337, combined with a descending trendline, forms a concentrated resistance zone to the upside.

Note: The above is an objective record of technical patterns and does not represent future performance or constitute any trading advice. The future direction remains dependent on changes in policy expectations and capital flows, and is subject to significant uncertainty.