23rd August - The Bund is poised for further falls
27 August 2013
TECHNICALS:
WEEKLY CHART
The market’s double failure at 146.89 has set up a complex ( ie unclear)
Top possibility.The Prior High at 140.52 may havebeen good support – there are four
bounces from about that level over the last two years – and the recent
lows at 139.90 provides one of twopossible selling triggers ( the other is
138.41) for the bears….
Look closer.
DAILY CHART
The detail of the recent bounce in June, and the push down beneath
that level in the last few days. Note the importance of the small
bear H&S pattern acting as catalyst to drive the market through the 140
level. The minimum move is as far as 139 just, but the presence of the
Prior Lows should ensure powerful resistance on any attempted rallies
once beneath 140.
The bears are in charge.
FUNDAMENTALS:
The Bund, which for so long has been a safe haven asset during the worst of the recession and financial crisis, now looks set for a long bear market.
The initial sell-off has already occurred, driven by the improving Euro zone Economic data which has seen the Euro zone PMI Composite survey move up from a sluggish mid 40’s reading to a more promising 51.7 this morning.
Several Euro zone members are still struggling with debt and recession - in particular Greece, but also Portugal, Spain and Ireland. But the two biggest Euro zone economies, Germany and France, are growing as evidenced by the recent release of Euro zone Q2 GDP reports.
The price action in the Bund has been made to look all the more bearish over recent days because is has happened as key equity markets in the Euro zone, US, UK and Japan have been correcting lower as well. They have been driven by uncertainty over the timing of the Fed’s decision to begin tapering at some point this year.
Moreover, the violence in the Middle East is spreading. The Syrian civil war looks to be moving to a more dangerous phase as claims are made by the opposition that government forces have resorted to the use of chemical weapons. That is likely to bring closer western power intervention.
Add in the violence in Egypt, which as the Arab worlds largest country and traditionally viewed as leader and equity markets cannot be blamed for having paused
But the Bund and other leading government Bond markets, notably the Gilt, have sold off regardless.
We judge the leading developed western economies of the US, UK, Euro zone and Japan are now all embarked on recoveries of varying strengths. At the same time, several emerging markets such as India, Brazil and Russia are struggling and the jury is still out on China.
The logical extension of this is that money previously invested in emerging market assets will look for a home in the markets of the recovering developed economies. The same is true for capital invested in the government bonds of the UK, US and Euro zone even though inflation remains benign. Investors will want to take on riskier assets that offer the potential for greater returns and those assets are not government bonds, but equities.
Add in the uncertainty of how the world’s Central Banks will run down their own holdings of government bonds, acquired by the US Federal Reserve, Bank of England and others during their QE/Asset purchase operations and the downside in government bonds, including the Bund look considerable.
The only question that needs asking is, will the sell off be a long drawn-out affair over a protracted time frame, or will it resemble the bear market of 1994 which was unrelenting, vicious and lasted for much of that year?
In any event, we judge the direction in the Bund is clear to see and it is down.
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29th Aug - Gold Recovery Reaches 38.2% Level 
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22nd Aug - Copper Recovery Threatened by Resistances