- One thing I learned in my 18 years of interbank trading : interest rate spread trends, once started, can go on seemingly "forever", because they are always driven by underlying fundamentals. For good trading, it is sufficient to reverse engineer those fundamentals from the chart (purely for peace of mind), rather than first figuring out the fundamentals and deciding what the trade is afterwards.
- US10YY minus EU10YY currently is at +12. On the weekly chart, we have a relatively fresh downtrend going on. Whilst it is noted that this down move started at +84, the SHS top has only just broken down at +27 recently. Objective here is -43, still a long way to go.
- [Head to NL = 84 less 14 = 70 bp. NL break point = +27. Target = +27 less 70 = -43].
- Europe's problems have not gone away. Through the recent Irish problems, both EUR/USD and Bunds have rallied, only because of US QE2. Not logical. One fine day, 1 of the 2 will reverse in a big way to reflect the underlying funding and budgetary pressures in Europe.
- Next action point : Increase trade on break of +4. Thus far, the customary (but not mandatory) pullback towards the NL hasn't happened yet. If it does, will add to position as well.
- [Next to soft commodity up trends, these IR spreads are the most dangerous trends to try fighting].
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