US 10 Year update.

Following last nights announcement by the FOMC, US 10 Year Yields have dropped to there lowest levels since early 2009 and the depths of the Financial Crisis, closing last night at just 2.75%. This may seem absurdly low to some, whilst others may argue that the Bonds are possibly heading towards bubble status, however my take, looking at the charts, leads me to think that there is still plenty of room for yields to move  lower.

The first chart below is the Weekly US 10 year yield since 2005. This shows a 'Failed Inverted Head and Shoulders' pattern formed over the past few years. The failed 'Head and Shoulders pattern' is probably a much more reliable tool than the actual 'Head and Shoulders pattern'. - The break of the low of the Right Shoulder of the pattern occurred in June and was subsequently re-tested last month, this re-test held well, and yields have since dropped by some 35bps. - Often, this pattern will see the price travel all the way to the peak or base of the head, in this case near 2%. Of course like all patterns it is fallible, however right now it appears to be following the script, and until such time as this does not seem to be happening, then I have no reason to doubt it. 

The next chart shows the US 10 year yield daily chart over the past couple of years. A major Double-Top formed over 2009/2010, this broke down back in June, a target for this is 2.20%. Additionally a strong downtrend channel, which has existed for some months now, is driving ths lower. The recent move up to 3.10% in July, was the re-test of the 'Failed Inverted Head and Shoulders' pattern break line, (as well as being the re-test of the Double-top), and a test of the upper downtrend channel line. - What is interesting here is we have a pattern, within a pattern, the Double-Top pattern sits within the Right Shoulder and the failed breakout of the 'Failed Inverted Head and Shoulders' pattern. - The past few weeks have also seen a small descending triangle, which has broken lower.  - Momentum, daily and weekly, remain supportive in my opinion. - Thus I believe that there are strong arguments, at least technically, for a further drop in US 10 year yields for now.

EURGBP Overview and Greece getting going again !!!!.

Yesterday's GBP budget has been given an immediate vote of confidence by the Foreign Exchange Markets. Cable has rallied 2 Big Figs in past 24 hours, whilst Sterling has also seen strong gains versus the EURO. In light of this I am posting a EURGBP chart showing the long-term picture, (Note this was created yesterday with EURGBP @ 8306, it has since dropped to 8240). This shows a large topping pattern over the past 2 years (either a Reverse Symmetrical Triangle, or Double Top), this should create strong downward pressure on this pair going forward. - Strong support zone @ 8170 to 8230 held a first attempt earlier this month, and may check the decline again, however I would favour an eventual break through here towards the second major support zone around 7700/7780. -- Weekly Momentum studies are supportive, (See below). The weekly ADX is turning up from low levels with a negative DMI in the ascendancy, suggesting a bearish trend is establishing itself, whilst weekly RSI is only just pushing the oversold boundary, suggesting some way to go before becoming overextended, and MACD shows strengthening downforce.One further set of charts I wish to post is Greece 10 Year Yield CDS v the Lehman Share price (Inverted) over its final 2 years, the final period being Lehman's death spiral. Note: the strong similarity in the appearance of these charts, and also the peak of the Greece CDS from early May, pre-ECB rescue package announcement, is in danger of being exceeded. The chart below is last night's close, already today the Greek German Spread has widened 66bps or 9% on the day. Greece may be yesterday's story, but may soon become tomorrow's story if it carries on like this.....