Learn to Trade – Bond Futures 7th July
Overview
Over the last five days the Bund has predominately traded sideways trapped within a 100 tick range. The US Ten Year has also traded sideways recently, consolidating after some recent strong performance. This week traders will be focussed on the latest rate decisions from the BOE and ECB.
Thoughts from the trading floor
From a technical perspective the Bund remains bullish, although over the last few days it has traded sideways between 128.98 and 129.86. The Bund performed strongly before the recent consolidation, therefore a break of resistance at 129.86 may result in a further leg higher and a test of the record high at 130.37. The US Ten Year shows a similar formation to that of the Bund, its pivotal resistance level is at 123.010. A break of here would most likely see a test of daily resistance at 123.275 and beyond that at 124.180.
Last week the ECB brought to an end their 12 month refinancing operation, leaving banks with the opportunity to roll positions into the 3 month program. The uptake on the 3 month was relatively small hinting that the banks were not dependent on the liquidity being provided by the ECB. The short term reaction by the market was bullish stocks and bearish Bunds but the longer term ramifications may be the exact opposite. It is thought that once the cheap money being provided by the ECB is no longer available banks will steer away from holding sovereign debt from peripheral EU nations potentially causing a second wave of the debt crisis that held the markets several weeks back.
Last week a lot of macro data was released in the US, the majority of the results disappointed particularly relating to housing and business confidence. In addition the jobs number released on Friday showed a lower number of jobs were being created than expected in the private sector. This would explain the Feds recent doveish rhetoric and we believe may force further measures later this year. Recently talk of further QE has been mentioned a move that would undoubtedly be bullish for the US Ten Year particularity in the short run.
Important events this week.
- Thursday: BOE, ECB Rate Announcements
Bull View
Bulls will remain confident and will be hoping that the recent consolidation represents a loose bull flag formation. Last weeks poor macro data out of the US will have further boosted their cause.
Bear View
Bears will again feel under pressure and will be desperate to hold the Bund below 129.86. A failure to do so could see a break of 130.37 above which a lot of stops may exist.
Futex View
We remain bullish both the Bund and US Ten year, however we believe the recent consolidation may last for several more weeks as trading conditions remain quiet. We do not expect to see any major surprises form the BOE or ECB this week.
Tags: bear, BOE, Bond Futures, bull, Bund, ECB, EU Nations, futex, futures, US
