US10Y Technicals – Huge Volatility Expected With 127.0 Being Tested

Treasuries prices pushed up higher once more despite stock prices falling on more QE tapering fears. This is the 2nd consecutive day that this has happened . As it is rare that Bond and Stocks are running on separate broad market driver, hence the likelihood of one or the other asset class moving in the “wrong direction” is there. Should the divergence continue for the next few days, the likelihood of a strong correction in either Stocks or Treasuries increases. Looking at how USD has been reacting, it seems that Taper Fears assertion does hold some water.

As such, the question we need to ask is what is actually driving Treasuries prices higher despite the surety of a Taper in either 2013 or 2014? The most obvious answer would be that speculators have pressed prices too low leading to the September FOMC event last week. And hence currently the market is still smarting from the miss. The best confirmation for such sentiment would be bulls managing to break above the swing highs of last week. Failure to do so will suggest that Taper Fears continue to reign and the divergence with stocks may end soon, favoring a bearish move for Treasuries moving forward.

Hourly Chart

From a technical perspective, price is being kept by the 127.0 ceiling but the short-term pressure is on the bullish side as prices have managed to break above the ascending channel that has been in play since the end of last week. Stochastic readings disagree though, with readings pointing lower following a bearish cycle signal – which was triggered with 127.0 holding during late US hour. However, stoch curve has since tapered flat significantly, and readings could still move higher from here given that the previous trough occurred around current levels as well. As such, do not take anything for granted especially when clarity in fundamnetals is lacking.

More Links:
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AUD/USD – Drifts to One Week Low below 0.94
EUR/USD – Continues to Slowly Drift Lower below 1.35

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