Traders are short; stop 94.480; sell again above 94.400
Trend followers are short; stop 94.650; sell again above 94.400
Investors are short; stop 94.650
Outlook:
AUS 10yr bond prices drifted lower for most of the week but the rise on Friday is a good sign that prices will rise again this week.This rise is the last leg of the corrective rally from 94.120 and has a target of only 94.450.
Most importantly, the medium-term cycle has entered a rollover window.A corrective rally ending in the next couple of weeks will have bearish implications and will suggest that the next decline will persist until September.
Until the cycle fully rolls over prices are likely to be kept in a range of 94.280/450.But towards the end of June prices should start falling decisively and when 94.230 gives way, continue to a new low.
At this stage I do not think prices will accelerate lower as short-term channel support near 94.000 should contain it on this occasion.But a medium-term channel has already been challenged, so a drop through the recent low of 94.120 will suggest that it too is breaking.From 94.000 expect a brief rise to 94.200 as price tries to respect the support.
But ultimately AUS 10yr bond prices should stay on their downward course.A subsequent drop in July or August will herald a new phase downwards, to test the convergence of long and medium-term channel supports around 93.500.At that point, the decline from September’s 95.030 high will be equal to the 2003/04 decline.
Only a rise through 94.550 will provide bonds with an opportunity to start a new rally.
Other Bonds:
US 10yr Bonds:A brief rise to 106^06 to complete the corrective swing.Then the main decline resumes.
Eurodollars:Drifting down to the 94.450/500 region, and later to 94.400.
Australian Bank Bills:Test channel support at 93.80 then a brief pullback to 93.90/95 before continuing lower.
Australian 3yr Bonds:Ranging this week before pushing to a new low around 94.00.
AUS 3/10 Curve:Pullback to around -2 before continuing the drop to -12.
AUS/US 10yr Spread:Will rise to only 75 to complete the corrective rise.
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