EURO BUND & US 10 YEAR T-NOTE

In January I’ve analyzed government bonds and drew attention to the weakness and to several negative divergences on the momentum indicators. These signaled weaker bond prices and possible “RISK ON” rally for equities.

http://techcharts.wordpress.com/2012/01/21/euro-bund-us-10-year-t-note/

This week bonds gave up and experienced a sharp “sell-off”. Of course the sell-off in bonds, buoyed by higher CPI data from U.S. due to higher energy prices renewed inflationary expectations. Could this be the beginning of an inflationary environment?

Given that the technicals have played out well in the past few months with prices pulling back to their long-term moving averages after seeing several negative divergences, I believe we should again wait for the prices to tell us what the market is thinking. It is still early to call for an inflationary environment given that Euro Bund and US 10 Year Note prices are holding above their 200 day moving averages. This is still a bull market for bonds and we are experiencing a pullback to important support areas. For Euro Bund continuous futures prices 132-135 is an important support area (horizontal trend support & 200 day moving average). For US 10 Year T-Note continuous futures prices 127-129 area is an important support area (horizontal trend support & 200 day moving average) where we can expect some sort of stabilization.