Tuesday, May 3, 2016

Treasuries Hide Directional Intent

Treasuries advanced following Australia’s largely unexpected rate paring.  Domestically, this week’s main event - the employment report, looms large but still rather distant.  Little in the way of direction can be inferred by price action over the prior week or more. 

Following the April FOMC statement, Treasury prices advanced though the Fed clearly left the door open for a June rate response.  Market participants concentrating on weaker Q1 growth and lingering overhang of global financial distress as well as the not too calming U.S. presidential race have indicated they do not believe the Fed hikes rates until much later this year, if at all. 

Technically Speaking (TYM6 – Ten Year Treasury Future):
Last at 130-05+ and at the 50% retracement of the April 7th 131-09+ high and the April 26th 129-02 low, TYM6 will have formed a bullish engulfing as long as the contract remains at/above 129-30 at close today.  Yesterday’s price action was weaker and followed Friday’s indecisive ‘doji’ price action.   

A bearish trend line dating from that April 7th high intersects trade today at 130-08 and a settle above would suggest further gains.  Otherwise, it would take a near complete reverse of overnight gains in order to write a more bearish immediate-term storyline.  A settle at or below 129-24+ would create a bearish shooting star.  However, like the bullish engulfing that would form on a settle above 129-30 today, as price action is not currently near extremes, there should be less confidence that these potential formations would be strong indications of near term trend. 

Longer term, the ‘bearish shooting star’ of Feb 11th still stands as most influential of any technical formation over the last months.  The ‘bullish engulfing’ patterns of mid and late-March offer support below.  TYM currently vacillates near the midpoint of that range. 

Tomorrow and Thursday’s price action will give better indication as to how market participants are positioned and how they may change positions following the employment report.   

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