The US 10Y note traded near two-month highs as a December taper looms over the market. There is a lot of focus on next week’s non-farm payroll, and that it will be strong enough to aid to the taper discussion.
The 10Y note action looks to be pricing in the possibility of a taper, but it is still only speculation.
“More of the talk now is how is the Fed going to distinguish in its communication between the need for tapering and the lack of need to raise interest rates,” said James Collins, an interest-rate strategist in the futures group at Citigroup Global Markets Inc. The 10Y closed the week at 2.748 percent.
The price action on the 10Y is still trading lower after the large gap down at the beginning of the week. The technicals still point to the downside, and the 10Y will drift lower until the payrolls next week. Resistance is at 125’165, while support will be located at 124’290.
A break below support, the 10Y could trade almost 100 ticks lower at 124’090. On the other hand, if data disappoints, the 10Y will trade back to resistance. Upon a break of resistance, upside of 125’225 is supported by the technicals.
There is a bearish 20/50 EMA crossover that will favor price action to the downside.