Halister News

(Bloomberg) -- UST-bund 10-year spread is resuming its widening trajectory after a multi-month pause since late December; EUR/USD risks appear skewed toward 1.05 test amid strong and stable correlation with rate differentials, Bloomberg technical analyst Sejul Gokal writes.

• See chart here; Bund-UST at -216bps
• Spread widened on Friday to as much as 13bps from the high (-203bps) and closed below the trendline that defined the narrowing phase since Dec. at -214bps
  • Candlestick read reveals a key day reversal session which supports near-term widening action (in favor of UST yield)
• MACD dips below zero line, first time since mid-Feb. with negative spread to signal line expanding
• Setup in trend/momentum tools argue for a widening to -221bps at minimum, although count ‘10’ on Candle session study injects cautionary note as it begins to flag risks of exhaustion (9-13 are typical trend reversal/stall numbers)
• Below -221bps, support at -228bps (76.4% Fibonacci) ahead of -238bps (December low)
• A daily spread close back above -202bps would question the widening stance and likely neutralizes the chart view

UST-Bund vs EUR/USD (see chart here)

• Cross-asset correlation read at +0.91 over 30-day rolling period
• EUR/USD next support at 1.0525 and then 1.0495 (March 2 low)
• 1-yr regression analysis shows line-of-best-fit (y=0.001x + 1.313) exhibits an r-square of 0.87, suggesting moves in rate spread (independent variable) provides a statistically significant explanation to movements in EUR/USD spot (dependant variable)

• NOTE: March 22, Bund-UST 10-year spread contracts to -195/-194bps, a level that may not give in so easily

• NOTE: Sejul Gokal is a FICC technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice