There has been a large rise in U.S. and European bond yields. This great graphic, using Bloomberg data, shows the U.S. (white), German (yellow) and Japanese (green) 10-year yields since the start of the year.
What is striking now rather than 6 weeks ago when we posted a similar chart here is that Japanese government bonds have in fact stabilized, while U.S. and German rates continue to rise and dramatically so. Japanese policy makers should be particular pleased, though it is difficult to see the measures they took that achieved this.
Instead, if our general narrative is accurate, that there is a big unwind taking place (with impetus from US, Japan and China), it may simply reflect the fact that investors were not big holders of Japanese government bonds.
In any event, the next result is that interest rate differentials are moving dramatically in the U.S.'s favor. Between the Great Unwind and the rate differential story, a positive dollar environment is unfolding. The U.S. premium over Germany is near 80 bp, the largest in three years. The U.S. premium over Japan is about 175 bp now, the highest in two years.
The euro has slipped through the 200-day moving average (~$1.3073). Note that the Golden Cross is in play. This is when the 50-day moving average crosses the 200-day moving average. The 50-day average comes in near $1.3080.
Against the yen, the dollar was stopped in Asia within ticks of the 50% of its 10 yen pullback that began on May 22. It takes a break of JPY98.80 to lift the greenback's tone now. The break of JPY97.50 warns of another 50-100 point down move. The yen's ability to strength during period of dramatic sell-off in global assets is threatening to re-emerge despite the wider interest rate differentials.