DE05Y
ridethepig | A Decisive Break in BundsThe positional strength in Bunds was just too strong to contain, the rest is obvious.
Now play the topside, retraces into buyers jurisdictions at -0.35 and -0.50 will attract a lot of selling interest in bunds (hence pushing yields up) and triggering the capitulation. We are still set for an emphasis of consolidation across Global Equities, this is still all part of the 'knee jerk reaction' phase. Many large hands were caught badly on the sharp moves lower, a legendary retrace is offering the opportunity for final repositioning flows for a secondary leg lower into 2021/2022. Before we can then move higher for the rest of the decade. For those tracking German Equities, the overshoots in DAX were very bad:
Strong Resistance 0.15% <=> Soft Resistance -0.15% <=> Mid point -0.30% <=> Soft Support -0.35% <=> Strong Support -0.50%
This leg higher in Yields is no surprises for those tracking the conversations on the eurobonds. The breakup in Bunds will also carry important implications for the EURUSD chart and 'Eurobond' positional flows:
" So we are gradually getting round to what is an important component in the process of formation in the currency. Like a trojan horse, Eurobonds are being pushed in from the mounting political and geopolitical pressure. The initial 500bn EUR will still require approval from the block, and may not be a huge sum considering a historic crash, however it is an incremental step in a positive direction. It is not really about the effectiveness of the implementation, and this is decided from completely different factors and distribution is not that clear. "
The market loves it...there is no question, we are seeing Europe strike a major expression on the world during this crisis and forming a protected outpost from an economic standpoint. The charming twist to this story, will be to track the pressure this applies to rates.I do not like the 'business as usual' story because of the reply:
Clearly things are looking awful on the inside awful despite how politicians and media are selling the reopenings...I have never seen anything like this in my life, the unpleasant feeling that we will see a second round of cases in the Northern Hemisphere remains and that will need to be given some elbow room... Consumer confidence remains the one to track; the glimmer of panic appearing and equities will snap, the same move we have been tracking.
All pullbacks should attract buying interest and outlook for Bunds remain in " Buy ". As usual thanks for keeping your support coming with likes, comments and etc!
Beyond price actionThis might contradict our price action analysis but this is something that needs to be taken into consideration.
As many know, German 5 yrs bond yields - US 5 yrs bond yields differential is regarded by many intermarket analysts to be leading indicator for EURUSD. EURUSD is supoosed to follow this differential and some traders make a strategy out of this.
And what we have been observing since 2018 was a significant divergence going on. The differential is the way above its 200 ema.
However we ought to remember also that DE05y unlike US05Y are in the negative zone now (for a long time already), this might be the reason of the current divergence.
D05y bullish move into 0 or above will surely drag the eurusd up if the differenatial keeps trending up.
This subject of intermarket analysis is not my expertise, though. Just sharing my observations.
The suspicious is the fact that on EURUSD monthly pre-breakdown candle is missing DM 3 breakdown qualifier (pre-breakout candle shadow is the way too long).
Eurusd vs De05yA monthly trend on 5 yrs German bond yields hitting -1 for the first time this March. You dont see all those fine tops on eurusd:)
De05y seems to keep dropping somewhat more, forming a descending triangle?
Right now its already below zero. Who is buying German bonds with a negative return? Many assume German bonds to be a safe haven in covid crisis.
Seem like instability in EURUSD is bcs all short term German bond yields going ever deeper into the negative zone.
The big question is how far De05y can drop? -2 -3? I think there is a limit. Who would borrow to the government with -10 return? The trend might hover around 0 - -1.
