With a ceasefire in Iran announced early yesterday evening the economic landscape may have changed dramatically, then again maybe not.
The only scheduled economic news today is the release of the Minutes of the last FOMC meeting at 2:00, but since the futures markets didn't have a change in rates priced in for the next 18 months, I'm not sure those minutes really mattered. Now the 18-month window has been narrowed to 15 months, so there is that. That of course is based on the energy markets which I'll get to shortly.
Treasuries opened much better this morning leaving sizable bullish gaps, but it seemed like that might be coming anyway so now the question is where the rallies will stop.
Yields rose yesterday morning until around 11:00 at which point the 5-year had traded just under a basis point into the bullish gap it left on 3/30, and the 10-year mimicked what the 5-year had done on Monday by trading right to its gap but not even a tick into it, both holding just short of 50% retracements of the rallies from 3/27.
The 30-year traded .2 bps through its gap and about a basis point through its 50% retracement target. So, after impulsive looking rallies from 3/27 followed by corrective looking pullbacks which held at great technical levels from which corrective pullbacks could be expected to end so the question now is whether the rallies will prove to be corrections of the breaks from 2/27, or something much bigger.
If they are corrections, I have what I believe to be very good target ranges for each maturity, beyond which I think the rallies could prove to be far more substantial.
- The 5-year has a wave-equality target at 3.781 and the range of 3.753 to 3.736 includes the 62% retracement of the break from 2/27 and a gap left on March 11th.
- For the 10-year the range of 4.189 to 4.183 includes a prominent yield trough and a wave-equality target, while the gap it left on 3/11 is from 4.165 to 4.154 and within that gap is its 62% retracement target.
- The range of 4.829 to 4.825 covers a prominent yield trough and a wave-equality target for the 30-year, while 4.813 to 4.788 covers the gap on 3/11 and the 50% retracement of the break from 2/27.
That may be a lot of numbers, but they come down to 3-5 basis point ranges for each maturity and I have a strong belief that if there's a good short trade coming, it will come from one of those areas and if a selling opportunity is not on the horizon, that's what will tell me.
As far as oil goes, yesterday the futures got to within about $2 of the 118.80 panic high printed on 3/9 after having dropped $35 from that high, and seemingly any new high above it would have left oil with very in the way of nearby resistance and targets of who knows where, but with the ceasefire came an immediate drop of $20 a barrel.
I guess we'll see what we'll see. What hasn't changed are the forecast for a very ugly CPI report on Friday and that can still prove to be huge.
