Thursday, April 21, 2016

Short End Yield Curve; Cash and Future Levels




Two year Treasury (TUM6) broke support at 109-08.25 on Wednesday, marking the largest open to close decline since March 1.  The third successive lower close brings the contract further below the mid-March started (‘bullish engulfing’) recovery advance high (109-14.25).   Price action has generally consolidated since late-March, confined to a range of aforementioned 109-08.25 and 109-14.  The break lower yesterday comes without baggage of oversold conditions, so we would not be too concerned by the oversized decline yesterday or that it indicates a stretched market. 

Support: 109-03+; 108-31; 108-26
Resistance: 109-08.25; 109-10; 109-14



 
Cash Two Year Treasury (0 7/8 of 3-’18) now trades in a downward sloping trend channel that offers support at 103-00.25 and the strong bullish session of March 29th should bring additional support at 103-00.  Below, we would look to 100-01.25 and then 99-31+ for some buying interest.  Since opening, the 3/’18 Two Year has not experienced as strong a decline as seen in a 12 hour period as seen yesterday.  Overnight activity had been confined to the lower edge of yesterday’s range.  A break below 100-04 could prompt additional selling and a test of support at 103-00.25 to -00. 

Support: 104-00; 103-00; 99.31+
Resistance 100-06+; 100-10; 100-11




June 2017 Eurodollar Future (EDM7) formed a ‘rounded top’ in price action since late March.  This morning decline marks a third consecutive new low following yesterday’s largest decline since April 1.  Support at 99.01 was broken, pressing price action well into the outside gains made on March 29.  There may be modest support from the ‘mid’ of that session at 98.965, which is the low price trading today as I write.  Below, support from the mid-March consolidation at 98.90 as well as channel trend support should offer stronger support today.  Like most fixed income contracts, EDM7 is influenced by the February 11th ‘bearish shooting star’ that ushered in a contract high.  That bearish reverse is THE predominant technical formation at this time and will continue to weigh on price action. 
Finally, it should be noted that the decline in Eurodollar futures, again the heaviest trade in weeks was accompanied by a large 103K increase in open interest.  This would tend to add creditability to the bearish implications of yesterday’s declining price action. 

Support: 98.965; 98.90; 98.835; 98.665
Resistance: 99.01; 99.025; 99.11; 99.20




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