US 10-Year Note Pulls Back on Jobs Data; Head and Shoulders in View

by on July 3, 2014 2:50 pm BST

US treasuries sell-off after data from the Labor Department show that 288,000 jobs were added in June, well above the 215,000 increase forecasted by analysts. The US 10-year treasury note yield increased to two-month highs, as the unemployment rate hits a six-year low of 6.1 percent.

Traders dumped safe haven assets and double-downed on risk on the assumption that the US economy is stronger than the 2.9 percent gross domestic product contraction in the first quarter may be an outlier. According to the Fed funds future contracts, traders are betting that there is a 63 percent chance that the Federal Reserve will increase the benchmark rate by July 2015, up from 53 percent in June.

US 10-year treasury note futures continued its decline since failing to break the daily 200 EMA on June 27. The daily 200 EMA has been a pivotal dynamic resistance level with price action being held below all but two weeks over the last year.

Price action is approaching the neckline of a head and shoulders, and a close below would trigger a continuation in the sell-of.  A close below 123’250 would target lower support levels on the daily for medium-term targets of 122’255 and 122’075.

The neckline could hold as traders digest the recent data, while keeping in mind that the Fed will be as dovish as possible. A pullback to resistance levels of 124’155 and 124’265 are probable is support holds.

1D Chart of ZN

1D Chart of ZN