The 10-Year US Treasury Yield welcomed 2018 with a rally. On an intermediate basis, we see the yield finding resistance at the 2017 high, ~2.6. If it shies away from a breakout, we expect disinflationary pressure in the near term. If this is the case, we can expect to see yields down, Dollar should move down as well, and gold up with commodities.
On the other hand, if the yield breaks out above ~2.6, then we can expect to see higher rates, a strengthening Dollar, a weakening Euro and gold. We currently see strength in the Euro versus the Dollar. If the European Central Bank’s hawkish policies manage to push the Euro above its 2017 high, we will see weakness in the Dollar and strength in commodities, namely oil (negatively correlated with the Dollar).
Therefore, from a macro perspective we are at a crossroads in terms of our outlook on oil and inflation, given that the US 10-Year Yield and the Euro are at critical points. We are looking at these two for clues on whether or not to take our profits on oil or add to the existing position, especially since there can be many variables at play in the case of oil (although we have been long the US Oil Fund since 12/20/17).