Overview
Over the last five days we have seen an increasing degree of volatility in the Bund and despite messy trading it has posted gains of almost 1 point. The performance of the US Ten Year was more impressive as it capitalised on equity weakness in rallying almost 2 points at one stage
From a technical perspective the Bund is looking increasingly bullish despite the daily double top formation still being in place. An hourly inverse head and shoulders has formed which also contains an hourly bull flag. The neckline of the inverse head and shoulders formation is 121.69, with the target being recent highs at 123.04 (incidentally there is a very similar target for the hourly flag). If this target was reached it would give the bulls another crack at breaching the double top formation opening the door for a significant push higher. A similar inverse head and shoulders formation can be seen in the US Ten Year with a target beyond the previous daily double top formation. The neckline is at 118.260, this provides a relatively low risk trade with a target at 119.170.
This week will see rate announcements out of the ECB, BOE and Fed, and although no rate changes should occur, the accompanying statements have the potential to move markets dramatically. We will be keen to see whether the BOE extends its QE scheme, at this stage many analysts are touting a £30 billion extension but many permutations are possible. The only surprise we feel the ECB could spring on the market would be a schedule for the removal of the LTRO, this is something member Webber hinted at last week and Trichet may further comment on this Thursday. Finally on Wednesday we will get the latest statement out of the FED, and we are keen to see if they remove any of their liquidity programmes.
Last night Australia raised their interest rates for the second time this year and although it is not a good indicator for Europe or the US it is a reminder of what is to come and will no doubt affect traders psychology as more countries look to rate hikes.
(Taken from futex)
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