So after the euphoria of the comments from ECB officials which sent spreads higher, we have now got a full retrace from that move as we are trading 4.5/5s in sep13dec13 after trading as high as 7.5, this is the case along the curve as we have flattened by 20 ticks + from earlier levels between sep13 and dec14. The fade was always the trade, but it was all about timing and with such a big move up at the time it was hard to know where it was going to stop.
Looking at things as they are, I'm favouring long here in the Euribor spreads as we are in this big range, and here I think we have good value. Secondly we have pushed up 300 ticks in the Bund since last week trading now at 143.90 after being as high as 144.37, but at the same time we have had a rally in the Euro as well as other currencies as we have had alot of dollar weakness.
Now with the Bunds heading towards highs (currently at 143.90) and dollar retreating, something has to give, and a long dollar short Bund trade could be a good hedge, as we enter September and the big players may be returning and see this disconnect.
143.60 was the level we spoke about in the last analysis on the break of 142.20, this has now turned to support after the break above it. The Bund has pushed higher since then so a break of this support could see us trade back down below 143, with the next targets as 142.55 and 142.20.
Alot of the movement will hinge on what Draghi will be saying at the ECB press conference next week as the market is eagerly anticipation some type of decisive action, so there could be a lot of positioning before then as speculation will continue till the meeting.
So hopefully September will provide more volatility and volume then we have had recently!
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