Treasuries Finally Break Range; But Does This Confirm A New Trend?

Index Strat Risk Target T-Note Flat Gilt Flat Bund Flat

Treasury Note (10-Year)

Short-term Technical Outlook


After three months, the benchmark ten-year T-note has finally broken out of its 124-17 to 122-03 confinement (without the temporary influence of a sharp increase in volatility like was the case back in mid-March). However, what would usually be considered a major technical event has generated little follow through follow through and momentum. In fact, the chop over the last week has completely lacked conviction on all levels. However, while this does add weight to the 100-day simple moving average (SMA) as a back up support; it would provide little influence should the bears start to push. Either way, the trend over the past three weeks for a steady bearish bias will prompt action with a second round breakdown or an aggressive reversal.

Long-term Technical Outlook


Only a break below the Elliott channel line would suggest that a top is in place. That line is at 120.25 this week (week ending April 10th). Until that line is broken, the risk of a bottom and continuation of the advance is high.

UK Gilt (10-Year)

Short-term Technical Outlook


The 10-year Gilt has bled off volatility over the past week and in do so has helped build up the relevance in support around 120. This week, the focus will be redoubled on the 38.2% Fib retracement of the Oct to Mar advance. After breaking trend last month, the four unique and prominent tests the market has produced on this level has developed an unambiguous level for the market to work with. From a mechanical standpoint, the past three months of price action for the Gilt has developed into a notable head-and-shoulders pattern with a neckline drawn up at this 120 level. Far more interesting is the same type of formation with a left shoulder at 124.75; but the trigger point for this setup is harder to call.

Long-term Technical Outlook


The rally from 116.52 is wave 5 from the advance that began in early summer 2007. A likely resistance area is the 161.8% extension of wave i of 5, which is at 130.89.

German Bund (10-Year)

Short-term Technical Outlook


Volatility and chop have been indelible features of bund price action for the past month. And, even if the market is able to develop a notable drive, there is still plenty of technical congestion on both sides of the market to quickly curb trend development (just look at the quick reversal and drop from the 124.70 range high in early April). This certainly complicates things for a clean setup. Congestion is the most consistent scenario at this point (clear entries, stops and targets). Meanwhile, we will keep our expectations for follow through on a break of either 123.50 or 121.50 reserved to well under 100 basis points.

Long-term Technical Outlook


The Bund is lagging the Gilt but a break above the December high is expected. A flat or triangle is unfolding from the late 2008 high. Once that pattern resolves, an upside break is expected.

Japanese Government Bond (10-Year)

Short-term Technical Outlook


A bias may be developing behind the longer-term JGB chart; but the bullish drift isn’t prominent enough to develop a rewarding strategy. Instead, we should place this move within the context of long-term technical developments. Following the March/April sell off, this tepid rebound seems to be a weak retracement. A retest of the former 138.20 support would likely take weeks of chop at the market’s current pace. More than likely, volatility will step in well before this eventuality comes to pass and spur the market to a real technical test.

Long-term Technical Outlook


A 10 year head and shoulders top may be in the works and this year’s high at 142 should remain intact (if the pattern is to play out) as the right shoulder of the formation. A break below the neckline would likely see a breakdown that carries into long term support levels of 122.50 and 116.41/117.20.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
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