Tuesday, February 28, 2017

US Treasury: Category Classification; ‘Stranger Things Have Happened’

To the surprise of many, and relief of more than a few, what followed a 6 session advance in US Treasury and Eurodollar futures, marked a striking US fixed income price tumble yesterday.  Technical conditions had been modestly overbought and the reversal brought some dramatic chart patterns. 

The five year (FV) Treasury future, in particular, formed a huge bearish engulfing on the Candlestick charts.  Similar patterns, though not meeting exacting standards, were seen in two and ten year futures as well as many contracts along the Eurodollar futures strip.  For the two, five and ten year futures, this reversal occurred after these contracts had made new multi-month highs, adding additional interest into the way this development proceeds. 

For guide, we shall rely more heavily on the bearish implications of this most recent reverse should any attempt at bullish recovery price action be stalled.  Specifically, we will require a settlement at day’s end today, Wednesday and Thursday, at or above the ‘mid’ from Monday in order for us to remain bullish Treasuries in the near term.    

If the bearish contingent is indeed determined and ready to recover their late-2016 market dominance, they should be able to prevent advancing price action here.  Below are the levels that two year (TU), five year (FV) and ten year (TY) Treasury futures will need to remain below on settle to indicate bearish intent:

Contract              ‘Mid’ (hurdle)
TUM7                   108-08.75
FVM7                    117-31.25
TYM7                    124-27.5

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