The confused looks on traders faces is the "Taper-On" reaction in stocks (after celeberating last night's false Chinese trade data [2]) as the USD loses steam. Critically, the USD weakness (more usually associated with Taper-off (print-moar-on) is indicative of the ongoing collapse in the JPY-carry trade once again that is gaining momentum as data (and technicals) prompt a Taper sooner than later. US equities are starting to catch down to foreign stocks (and domestic credit), Treasuries are bid (but the Taper?) on safe-haven buying, and gold and silver are spiking as the USD comes under attack.
The JPY-carry unwind is of the order of the June Taper Tantrum now... with JPY at almost 2-month highs against the USD...
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[4]
And BofAML's thoughts on the technicals levels to watch:
Since yesterday's 1680.50 lows, ESU3 has squeezed higher. However, despite these gains, the contract remains vulnerable. Indeed, the impulsive decline from 1705 says that stalling is likely against 1695.50/1700.75 resistance, with a break of 1692.25 trendline support opening the near-term downside toward the larger range lows at 1670.50/1665.75.
[5]
HOWEVER, WE MUST STRESS that weakness remains corrective, with bears needing a closing break of 1670.50/1665.75 (1671/74 basis cash) to gain control. Given this backdrop, we feel comfortable staying bearish US Treasuries, despite the potential for near-term/corrective equity weakness.
Looking at 10yr yields, Bulls ONLY GAIN CONTROL ON A BREAK OF 2.459%. Against here, lower yields are a selling opportunity for 2.756% (Jul-07 highs), ahead of 2.85%/2.95% (2011/13 Head & Shoulders Base obj.)
