Monday, July 11, 2011

Treasury Tuesdays

Last week, I wrote the following about the Treasury market:
Given the low trading volume and the price action around the 200 day EMA, I'm thinking the TLTs will pause here or rebound into the EMAs. However, I think the IEFs are targeting the 200 day EMA. Given the Fed's departure, I believe the Treasury market is moving lower for the time being.

What I didn't count on was EU problems leading to purchases of US Treasury bonds as a safe have play.

Let's take a look at the charts:

The 10 day, 5 minute chart shows the strong advance in reaction to the EU situation over the last few days. On Friday, the market was concerned about the EU changing the conditions of the Greek plan in a manner that would indicate default, while yesterday, the market was concerned about Italy. As a result of both, the US Treasury market caught a safe haven bid despite the ongoing debt negotiation situation.

The IEF prices have moved through key Fib levels. Also note the 10 and 20 day EMA have both turned higher and the 10 day EMA is about to move through the 20. However, the volume is less than convincing and the bars are incredibly weak.

Overall, the last two days' price action is more a fundamental reaction to the EU situation, which is interesting, as this has occurred at exactly the same time as the Fed backing away from the market lowering demand. And then there is the possible impact of the debt negotiation deal. It's my opinion this is a temporary bounce, caused by the EU situation.