US10Y Technicals – QE Taper Bigger Scare Than Threat Of War

US10Y T-note prices fell sharply yesterday after a much stronger than expected ISM Manufacturing Print. August numbers came in at 55.7, much higher than the expected 54.0 and reflecting a much stronger growth rate compared to July’s 55.4. Unfortunately for bond traders, this strongest print in 28 months actually heightened market fears of a QE taper, resulting in yields increasing/bond prices decreasing. Prices retraced a large part of the gains following reports that Obama is receiving support from Republican leaders, bringing us closer to a Syrian war. The fear factor resulted in a stronger demand in treasuries, sending 10Y prices back up almost immediately following the initial sell-off on Taper fears.

Hourly Chart


However, the rally was nowhere close to make up for the losses suffered earlier. Prices failed to even hold onto the 124.8 support turned resistance, trading lower by straddling the underside of the descending trendline towards the end of US trade which continued into the Asian session. Stochastic readings suggest that we are in a downtrend, with readings pointing lower, looking to extend the original bearish cycle signal that was in given yesterday. Based on this, the immediate bearish target would be the swing low of yesterday, but bears may be able to aim further and extend current bearish momentum that has been in play since 28th August.

Weekly Chart


From the long-term chart we can see a potential bearish breakout in the works. If the breakout is confirmed, the next bearish target would be 122.75 – 123.0, with ultimate bearish target the consolidation between 118.0 – 122.0 found between Jan to April 2011.

Fundamentally, it is interesting to see that markets is still having fears of an upcoming QE taper, despite it being more or less a done deal. With prices falling so sharply following the ISM Manufacturing number, it seems that market has not fully priced in a tapering scenario in September. Therefore if a tapering action is announced, we could still see prices dipping lower substantially. However, the reverse is true as well – noting how jittery market is with regards to a tapering action, a lack thereof during September’s FOMC meeting may drive Treasury prices sharply higher.

More Links:
AUD/USD – Pushes up Strongly through Resistance at 0.90
EUR/USD – Sustains Break through Key 1.32 Level
GBP/USD – Continues to place upward Pressure on 1.56

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Mingze Wu

Mingze Wu

Currency Analyst at Market Pulse
Based in Singapore, Mingze Wu focuses on trading strategies and technical and fundamental analysis of major currency pairs. He has extensive trading experience across different asset classes and is well-versed in global market fundamentals. In addition to contributing articles to MarketPulseFX, Mingze centers on forex and macro-economic trends impacting the Asia Pacific region.
Mingze Wu