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The Main FX Charts For The Upcoming Week: The 2s10s Is Set To Resume Flattening Again

Tyler Durden's picture





 

Goldman's John Noyce once again lays out all the main charts to keep a track off in the coming week, with a particular focus on the EURUSD, EURUSD 2 Year swap spreads, USD 2 and 10 Year swap spreads, but most notably the  2s10s treasury curve, which according to Noyce is set to resume flattening.

First, looking at the 10 year USD swaps...

The downtrend from the June '08 highs and the 61.8% retrace of the drop from the June '09 highs to the October '10 lows are converged on 3.6%

A break above this region would be significant, but the weekly moving average setup is nothing like as aggressive as that on the 2-year (here the 200-wma only stands a further ~35bps above current levels).

It therefore seems to fit that the 10-year/2-year curve is at the “highs”…

This would be a pretty natural place for the curve to begin flattening again.

The spread between 10-year and 2-year USD swaps currently stands at 268bps, very close to the prior cycle highs from 15th December/18th February ’10 at 273-274bps.

In terms of structure the setup isn’t that clear, but given the curve began to flatten from just above current levels on two occasions over the past year it seems very reasonable to watch for signs of another similar move beginning.

Putting all the pieces together; the aggressive weekly moving average setup and triangle like consolidation on 2-year swaps, the relatively less aggressive weekly moving average setup on 10-year swaps and the current extreme level of the 10-year/2-year curve, it seems the market is at a juncture where a break higher in short-end yields would be very significant both in specific yield related terms and also due to the USD’s +ve correlation to short-end U.S. yields in a number of currency pairs.

Full weekly presentation:

 

 


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Sun, 02/06/2011 - 12:54 | Link to Comment ArkansasAngie
ArkansasAngie's picture

The curve may flatten from time to time, but the upward trend will not decline.  Either Ben is successful and inflation expectations go up or Ben will be successful and the economy improves.  Either way ... interest rate go up.

On the other hand ... should interest rates stay the same or decline then we really are in trouble.  Then we know that Ben is a total failure. 

Zombies don't live forever.

Sun, 02/06/2011 - 13:33 | Link to Comment ABG LINE
ABG LINE's picture

Thank you for the GS FX charts from the last three weeks. :-)

Sun, 02/06/2011 - 15:38 | Link to Comment etrader
etrader's picture

+1

They may not get the hit rates as other threads but their appreciated.

Any Barcap ones doing the rounds ;-)

Sun, 02/06/2011 - 16:00 | Link to Comment 4xaddict
4xaddict's picture

Looks to me like there is also a bearish butterfly reversal pattern forming on the 1st chart that could see things at 5.20-5.80 on pattern completion before reversing back down strongly maybe around year's end.

The second chart to me looks like it may also be about to make a concerted move through that upper resistance. It's easier to run through a door from a couple of feet away that after running a marathon. Looks like a skipping rock to me, the more times it bounces the more likely it's going to break through the water's surface.

Just an observation.

Sun, 02/06/2011 - 18:27 | Link to Comment Yen Cross
Yen Cross's picture

I have one easy comment. Risk vs Reward. I personally am trading small and watching the low thru mid 79's on dxy. Also the econ calendar. I'm in Australia right now. Things are slowing down. Cyclones just exacerbate the trend.

Sun, 02/06/2011 - 23:45 | Link to Comment chump666
chump666's picture

yen,

short AUD, long bluechips stocks (AUST).  watch AUST bond (short/mid) yields, should diverge to AUST stocks selling.  

 

 

Tue, 02/08/2011 - 18:56 | Link to Comment Just_Another_User
Just_Another_User's picture

once again... thanks for posting!

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