Tuesday, 30 March 2010

Bond analysis

Overview

Over the last 5 trading sessions we have seen the bund move sharply lower touching a recent low of 122.53 last Thursday. This move appears to have been led by the US Ten Year which came under pressure on the back of three poor auctions.

From a technical perspective we have seen a significant shift in the Bund over the last week. The failure to complete the contract gap close has seen the market quickly lose ground and it now appears to be forming a potential bear flag. Yesterday it tested the 50% retracement of the recent down move (123.13) but quickly lost ground. As long as the Bund holds below here a bear flag formation remains technically sound. A break of 122.54 would confirm the downside momentum and would most likely see a challenge of the June contract low at 122.07. The US Ten Year has also shifted dramatically to the bearish side. Since the June contract became the front month the market has been under extreme pressure taking out key support at 116.285. Like the Bund we may see the development of a daily bear flag over the next few days. If this proved to be the case a downside break would be tested by support at 114.285 and 114.080.
This week we will see the latest jobs data released out of the US. It is expected to show the strongest results for over two years, an outcome that may see some fixed income bulls grow nervous. The figure is expected around +190k but if, hypothetically, we were to see a print above 300k it may lead some participants to be concerned over the timing of Fed’s interest rate hikes. There would likely be pricing in of a change in language at the next FOMC meeting, away from the extended period terminology to something more hawkish. For this reason it is likely that fixed income will remain under pressure this week as fears of a stellar NFP paralyse bulls.
Last week the US had three treasury auctions all of which were met with poor demand resulting in higher yields. On both the 5 and 7 year the US Ten Year dropped over half a point, and at the time this seemed extreme. In retrospect this highlights the concerns that still remain regarding the US’s ability to pay for its extreme levels of spending. Auctions will be under particular scrutiny over the next few weeks as traders look for signs of further weakness.

Thursday, 4 March 2010

Short Sterling technicals

June10 has resistance at 99.28 if we move above 99.26. Below support at 99.23 sees buyers entering at the lower
end of the range at 99.21/20.

Sept10 struggling at 99.10. Once through 99.11 we can look for the contract highs of 99.15. Good support remains
at 99.06/05 but a break lower is possible and would target 99.025/02 for a buying opportunity.

Dec10 broke lower to hit our support at 98.76. A break of 98.75 is now possible and would take us to 98.725/72.
Expect a bounce from here to take us to 98.80 initially. If 98.76 holds we could bounce to 98.80 followed by
98.83/84. In the longer term this market now looks weakened so a bounce could be a selling opportunity.

March11 plunged to our support at 98.41. In the longer term this market is looking weaker but for today there is
good support down to 98.40. A bounce from here would target 98.45 then 98.47/48. A break below 98.38/37 is
a worry and should take us to 98.33/32 and could stretch to 98.29/28.

Wednesday, 3 March 2010

Greece announces Austerity measures

The Euro has been catching a bid on the back of news on reuters:
• RTRS-GREEK CABINET DECIDED ON EXTRA AUSTERITY MEASURES OF 4.8 BLN EUROS- GOVT SOURCE 09:00GMT
• RTRS-GREEK CABINET DECIDED TO RAISE VAT TAX BY 2 PCT POINTS TO 21 PCT- SOURCE
• RTRS-GREEK CABINET DECIDED TO TRIM SALARY BONUSES BY 30 PCT IN 2010- SOURCE
• RTRS-GREEK CABINET DECIDED TO FREEZE STATE PENSIONS IN 2010- SOURCE

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