ECB-Inspired Bund Selloff Lacks Endorsement in Momentum: Charts
(Bloomberg) -- The worst day for bund futures this year, which led the generic contract to close at lowest since May, has failed to drag the daily momentum RSI indicator to fresh cycle lows, suggesting downside move is losing steam, Bloomberg technical analyst Sejul Gokal writes.
- See chart; now +4 ticks at 160.32 vs 159.81 session low
- Contract today paring some of yesterday’s selloff sparked by a report suggesting that ECB considering signaling end to QE
- 9-day RSI closed yesterday at 30, higher than the 16 reading on Nov. 11, even as yesterday’s close was lower than seen Nov. 11 (positive price/momentum divergence)
- Generic contract also supported by 55-week MA this week at 160.10, where bunds have tended to stabilize/rebound during multiple tests throughout last year
- While strong penetrations into oversold zone (below 30) are normal occurrences, specially during abrupt shifts in trend (as seen post-Trump win), divergences are much more noteworthy and offer a more reliable way to read the RSI and anticipate turnarounds (see previous cases of RSI divergence in May and June 2015)
- Bund futures have historical bias to rally heading into ECB meetings this year; average gain for the three sessions preceding an ECB meeting has been 34 ticks, or 2.5bps
- ECB Likely to Add More Stimulus at December Policy Meeting: BI
- NOTE: Sejul Gokal is a technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.
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