Learn to Trade Bond Futures 22nd June 2010
Overview
Over the last five days we have seen the Bund and US Ten Year come under pressure on the back of a strengthening Euro and rebounding equities. This week we will see a raft of data released including the latest FOMC rate decision and statement which will hold traders attention.
Thoughts from the trading floor
From a technical perspective the Bund looks weaker than it has for a few months as it has broken some key levels including a large daily up trend. Now it can definitely be claimed we have formed a short term daily down trend. To the downside key daily support lies at 126.53, a level which was the previous double top back in Jan 09, a break of here could see the market move swiftly to test 124.50. To the upside key resistance lies between 128.00-10. The US Ten Year continues to trade in its broad sideways range between 119.220 and 122.145 that has exited since May.
This week we will see the latest rate decision out of the FOMC with most expecting rates to remain unchanged and the accompanying statement to remain dovish. This is a sentiment we concur with in the light of the recent weak data emanating from the US. If we do see a continuation of soft data particularly relating to jobs it will be very hard for the Fed to signal any toughening in their stance as it would undoubtedly result in a severely negative reaction in equities. For this reason we expect rates to remain at exceptionally low levels as long as inflation fears are subdued.
Yesterday Merdedith Whitney was a guest host on CNBC and she revealed her feelings about the US recovery. Ever since she accurately predicted the troubles banks would suffer during the credit crunch 2 years ago Whitney is an analyst that the markets respect. When questioned she painted a bleak picture in which banks would struggle to achieve such strong profit levels without government assistance and perhaps more worrying that she feared US data would continue to weaken and a double dip was likely. This view adds weight to bond bulls who believe the flight to quality trade is not yet over, and should a double dip transpire we will likely see lower yields before any significant bond sell off.
Important events this week.
- Tuesday: UK Budget, Existing Home Sales (US)
- Wednesday: New Home Sales (US)
- Thursday: Durable Goods (US)
- Friday: GDP (F) (US)
Bull View
Bulls will have to remain patient as the Bund is likely to see little upside gains during the summer months. As long as they can remain above key support levels they should remain content as the Autumn is likely to provide them with the buying they want.
Bear View
Bears still remain under pressure despite their recent gains as fundamentals remain weak. They will take heart from the recent trend line break and will be looking to take advantage of this technical.
Futex View
Today should be volatile for bond markets particularly the gilt in light of the UK budget. Beyond that we believe markets will trade relatively sideways over the next few weeks before re-challenging highs in August/September. For this reason we will maintain a core long position with a patient outlook.
Tags: bear, bond, Bond Futures, bonds, bull, bund futures, learn to trade, market profile, technical analysis
