Learn to Trade Bond Futures 29th June
Overview
Over the last five days the Bund and US Ten Year have performed well bolstered by some weak data emanating form the US and the ongoing sovereign debt saga in Europe. This week could prove another fruitful one for bulls if the raft of US data released culminating in the US jobs report show signs of contraction.
Thoughts from the trading floor
From a technical perspective the Bund has overcome its recent wobble and now looks ready to re-challenge resistance at 130.37. Crucially in bouncing from recent lows at 127.12 it has driven through pivotal resistance at 128.10 and cleared the next challenge at 129.14. If we were to see a break of all time highs extrapolated resistance lies at 130.56, 130.71 and then 131.45. The US Ten Year has also turned a lot more bullish, this morning it crucially broke above pivotal resistance at 122.145. This represents the markets highest level since May 09 and assuming a clean break we could see a swift push up to 123.275.
In recent times fears have risen that the US may be dragged into a double dip scenario as a result of the European problems. Recent US fundamental data has hinted that this may be actually occurring as we have seen some substantial softening in releases across the board. This week we get the latest Consumer Confidence, ISM Manufacturing and jobs data. In light of current conditions the importance of these releases cannot be underestimated, poor results would justify bonds elevated levels and likely provide the catalyst for a further push to the upside.
For some time now the talk has been about the potential to put on a long US Ten Year short Bund spread. We believe conditions may now be correct for this trade and that fundamental data released this week may see the US Ten Year narrow some of the Bund's recent out performance. The ratio for this spread is currently 1.9 US Ten Years for every Bund. We believe this spread will close during the summer months so it represents a 2-3 month play.
Important events this week.
- Tuesday: Consumer Confidence (US)
- Wednesday: GDP (final, UK), ADP Unemployment (US), Chicago PMI
- Thursday: ISM Manufacturing (US)
- Friday: Change in Non-farm Payrolls (US)
Bull View
Bulls will be keen to capitalise on recent strength by posting some strong technical breaks. In the Bund a break of 130.37 is crucial if further gains are to be seen. This weeks data may provide the catalyst traders need to achieve this short term goal.
Bear View
Bears will be concerned by their inability to hold onto recent gains and will be fully focussed on protecting the high in the Bund. If this can be achieve they will have a double top formation that will give them something to work with.
Futex View
We remain bullish bonds particularly the US Ten Year, this week should provide further gains and we expect the Bund to challenge 130.37. It must be noted however we are entering summer trading conditions and the going may prove slow over the next few weeks.
Tags: Bond Futures, learn to trade, market profile
