Thoughts from the Trading Floor by Futex

Thoughts from the Trading Floor
	From a technical perspective, German Bunds saw bears take control and overpower weak buying pressure, snapping through support at 125.05 before eventually bouncing off 124.36. Bears will be waiting for a renewed assault on the 124.36 and will look to test 123.76. The medium to long-term trend is still in their favour and selling momentum has picked up. Bulls will fiercely defend the low stamp of 124.27 over the next few days; this level will be vital in halting the current bearish pressure. Bulls will hope to reject the current lower prices and will aim to recapture the 125.50 handle to establish their presence. If buyers are able claw back losses this week, they will look to 126.54 as a key reference point. Thursday’s ECB press conference produced a hawkish tone from Trichet with him expressing concern regarding short-term inflation pressures. Bond markets sold-off aggressively after the statement, as the market readjusted interest rate expectations from the ECB. It was interesting to note that the ECB’s own Orphanides said investors might have gone too far in pricing in higher interest rates and that markets ‘overreacted to the underlying message’. On the supply front, Spain has a high level of issuance in 2011 and wants to secure as much funding as soon as possible this month. Today’s Spanish bond auction will now be a syndicated sale, replacing two auctions of bonds due in 2020 and 2024 that were scheduled for January 20th. Many in the market feel this sudden decision to issue a lot of Spanish debt is very opportunistic given the previous successful auctions from Spain and Portugal this month. A poor Spanish auction, as a result of them ‘jumping the gun’ by issuing extra debt earlier than expected this month, will lead to some sound trading opportunities. by Futex Important events this week. • Tuesday: Zew Survey (GE), Citigroup & Apple earnings • Wednesday: US Housing Starts, Goldman Sachs earnings • Thursday: Phili Fed, MS earnings • Friday: Retail Sales (UK), IFO (GE), GE earnings