10Y prices jumped higher yesterday following the weaker than expected Durables Goods numbers. It is debatable whether demand for Treasury rose due to risk aversion, or due to speculators believing that Fed will rethink about their fervor for a tapering action in 2013 and an entire stop in 2014. Reaction from stock prices suggest that it is the latter, but the answer is less important because both interpretation result in higher bond prices.
What is more important instead is the fact that prices were unable to breach the 125.5 ceiling which was the top of the consolidation zone found between 20th to 21st August. However price did manage to find support around 125.30, which was the peak of last Friday’s rally – the aftermath of much weaker than expected housing numbers. By breaking away from the consolidation zone seen on Monday, the immediate pressure to move back towards 125.0 has been lifted. Nonetheless, should 125.30 is broken, 125.0 will be exposed again.
From a technical perspective, downside targets remained favored as long as 125.5 remains unbroken. Stochastic readings are currently pointing lower after entering into the Overbought region marginally during late US/ pre Asian session today, suggesting that we are currently in a bear cycle. However looking at the previous 2 recent peaks, Stochastic readings would need to break the stoch “support level’ of 55-60.0 which should ideally coincide with a 125.30 break to signal a strong bearish movement.
Following the non-event at the Jackson Hole conference in which Bernanke did not attend, there is a fresh wave of speculation that believes that September may not be the date which a tapering action will occur. This group however remains in the minority, resulting in small bullish movements in 10Y prices instead of any huge sharp rally since the start of the week. Looking at how prices is staying stable between 125.3 to 125.5 right now, one can easily imagine that prices would have remained between 125.1 – 125.3 if not for the Durables Goods event risk. Fundamentally market isn’t really certain on any direction right now, and in such situations, it is unlikely that strong support/resistances can be broken without any further fundamental event risk such as the one we had yesterday. That being said, if we see sudden shift in prices of 10Y without any event risks, this would also mean that market sentiment may have shifted and may be the start of a new directional movement from now till the FOMC decision in September.
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