Rally in Yields Pressures Euro, S&P 500 but Rebound Looms Near Key Levels

On Wednesday, the Treasury bond market was hit by a new wave of sell-offs. The yield on 10-year bonds surged by 11 basis points in a short span of time, setting a new local high:The sell-off was apparently triggered by the durable goods orders report. The market had expected a 0.2% decline for the month, but the economy once again demonstrated its resilience, with headline reading jumping to 0.5% and core orders component to 0.4% (compared to a forecast of 0.1%). The significance of this indicator lies in its correlation with consumer credit volume and households' long-term income expectations (as goods in this category are predominantly high-priced). Considering that the Federal Reserve is trying to slow down consumption to reduce inflation, a surprise increase in this indicator only raises the probability of further policy tightening by the Fed.Yesterday, the EIA also released data on crude oil inventories, which unexpectedly showed that refineries increased their demand for crude oil, serving as an indirect sign of economic expansion. Crude oil inventories decreased by nearly 2 million barrels, compared to a forecast of -0.3 million. However, gasoline inventories increased by approximately 1 million barrels, against a forecast of -0.1 million.The S&P 500 experienced a decline for most of the trading session yesterday but rebounded from 4,240 points by the close, fully recovering from its intraday dip. We previously discussed a rather straightforward technical chart for the index, which is likely to be a guide for action for many market participants:It can be seen that the price broke through the lower bound of the ascending channel but encountered strong resistance from buyers, as seen from the short candle body and long tail. This could be a sign that some buyers indeed view the 4,270-4,220 zone as a support area and will attempt to bet on a U-turn there. Analyzing the dollar index chart, we can also see that the price hit important resistance line:Today, the market has reacted fairly indifferently to another round of hawkish incoming data on the American economy. Initial jobless claims hit a new low at 204,000, compared to a forecast of 215,000. The final GDP estimate for the second quarter remained unchanged at 2.1%, but the previous quarter was revised up to 2.2%. Meanwhile, inflation in Germany unexpectedly slowed down to 4.5% compared to a forecast of 4.6%, which gives reason to believe that tomorrow's inflation report for the EU will also indicate favorable dynamics in European consumer prices. This should alleviate some pressure on the ECB to raise rates amid a slowdown in the European economy and help the Euro maintain its defense around the 1.05 level.Overall, the incoming data on Thursday, the market's reaction to them, and the trading of major currency and equity benchmarks (the dollar index and S&P 500) in proximity to levels where it's quite attractive to bet on a rebound will likely lead to a relief rally in the "beaten" asset classes. EUR/USD may extend its rebound towards 1.06 by the end of the week, and the S&P 500 could move closer to 4,300. However, the bearish stock market and dollar rally have a good chance of continuing into the next week.