03 February 2013

US 10-yr T-Notes : A Scandal in Bohemia Moment

  • Sharp reversals under stress conditions often reveal important clues regarding underlying market intentions. Last Friday's ZNH3 price action pre- and post-NFP could well be one such instance. Pre-NFP around 131-06, post-NFP rally high 131-26.5, close of day all the way back down to 131-03, leaving behind a huge "selling tail".
  • Weekly : Poor close, suggests heading towards 127-23.
  • Daily : Just like Sherlock Holmes tricked Irene Adler into revealing the hiding place of the King's incriminating photo, the within expectations NFP + uptick in UR gave the market a "WTF are we doing up here" collective Eureka moment, resulting in the sharp trading reversal. The bears are clearly in ascendancy here. 
  • [The corresponding EUR/USD point is 1.3585 (exact same price action on Friday). There is an observed high negative correlation between the 2 (ZN vs EUR/USD) ie higher US rates = higher EUR/USD. Never mind the lack of logic. Just go with the flow.].
  • Going forward, 131-26.5 and 1.3585 will be useful reference points for stop losses and trade risk/reward considerations.
  • Trade : Short, deep in the money. Recently been making +131-00/-131-16 trades. Armed with this latest clue, it's time to get serious short and skip the trading in and out part.