After an early attempt to break to a new low failed, September 30-Year Treasury Bonds rebounded to close higher. The trading action suggests that buyers came in to defend the low at 133’04, or short-selling dried up as the market approached the same level. Although this is only a small, three-day support base, the market appears to be setting up for a drive to the upside.
The catalyst behind today’s rally was a weaker-than-expected U.S. Final GDP report. The surprise slowdown in growth has put the focus back on the Fed. Although many traders have been selling bonds because they believe the Fed is going to begin tapering its aggressive asset buying program as early as September, today’s soft GDP report suggests the Fed may have to take a wait and see approach.
At this time, traders are trying to decide the Fed’s next move. Most agree the Fed will take action, but the time frame is the variable. Today’s short-covering represents a small shift in sentiment by those who now believe the Fed will wait until after September. As long as the economy remains sluggish, the uncertainty over when the Fed will begin to wind down its stimulus buying is going to be the driving force. This should create volatile trading conditions.
Technically, the main trend is down. A trade through 135’22 will turn the minor trend to up. The first upside objective is a downtrending Gann angle at 136’28. Sustaining a move through this angle should put the market on course to test the short-term retracement zone at 137’00 to 137’29.
The next Fed meeting isn’t until late July so all traders can react to is the economic reports. Not to simply matters too much, but reports that show a weak or sluggish economy will be bullish for bonds. Those that show growth will create downside pressure.
Thursday’s weekly unemployment claims report could move the market early in the session. This report could set the tone for the day.