10-Yr U.S. Treasury Notes (TY) Futures Technical Analysis – January 7, 2015 Forecast

Upside momentum continued early in the session on Tuesday, driving the March 10-Year U.S. Treasury Notes to their highest level since October 15. Sellers came in heavy after the market reached 129’03.5 as the position-squaring began ahead of today’s release of the latest Fed minutes and Friday’s very important U.S. Non-Farm Payrolls report.

Technically, the main trend is up on the daily chart. Yesterday’s spike rally was triggered by a combination of aggressive short-term buying and massive short-covering. The buying was fueled by foreign traders seeking shelter against the economic turmoil in the Euro Zone. The short-covering was fueled by investors exiting after putting themselves in a position to benefit from an interest rate hike by the Fed.

The volatility in this market is being created by the two-sided outlook for this market. One scenario has traders building short positions in anticipation of a rate hike by the Fed between April and June. The other is being fueled by foreign investors coming in for protection and the better yields. These buyers are looking to lock in a better return given the strong possibility of quantitative easing by the European Central Bank.

The current chart pattern suggests investors should prepare for wild swings and expanded ranges. On the upside minor resistance is at 129’03.5 and 129’28. They are minor because traders don’t really know where the resistance is. The current trading action suggests rallies will continue until the weakest short is blown out of the market and not at a specific resistance level. This is because traders are being reactive and not proactive.

On the downside, there is potential support at 128’02.5 and 127’21.

There is no key level to watch today. The only advice I can give is to prepare for excessive volatility and a possible two-sided trade. This price action is likely to continue until clear resistance and support areas are developed.