Monday, April 27, 2015

Equity Strength to Bid Farewell to Treasury Support

Global equities firm and the S&P breaks above very strong resistance that has held back the index since late-February.  Encouraged by this development, I expected Treasury and Eurodollar prices will find sellers as the prospect for an extended Q1 weak patch has already been priced. 

Technically, there is a possibility for many usfi contracts to construct a bearish engulfing pattern if higher late Sunday opening levels give way any much further.  Shorter duration contracts like 2 and 5yr Treasuries as well as Eurodollar futures look more likely to form these patterns.

A flattening of the Treasury curve in 5-30 is likely signaled by a growing appreciation in the front end of the curve that the Fed will not postpone ‘normalization’ indefinitely while the long end remains captive to the unfolding Greece story.   

For guide, EDH7 creates a bearish engulfing with settle at/below 98.52 while TUM5, FVM5 and TYM5 create one with respective settles at 109-21.20, 120-13 and 129-01.  

Finally, a 5-30 settle at/below upward sloping trend line support at 125 would likely usher in a stronger flattening response.  



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