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Treasury Bond Rally Indicates Fed Statement was Dovish

By:
James Hyerczyk
Updated: Jul 28, 2016, 04:06 UTC

September 30-Year U.S. Treasury Bonds closed higher on Wednesday after the U.S. Federal Reserve delivered what investors expected on Wednesday, it opted

US Department of Treasury

September 30-Year U.S. Treasury Bonds closed higher on Wednesday after the U.S. Federal Reserve delivered what investors expected on Wednesday, it opted not to raise interest rates and it was more upbeat about the economy than it was a month ago.

The rally by the T-Bonds and gold markets suggest that investors feel the Fed was dovish. In other words, it not say with conviction that it was ready to raise interest rates. However, it was right about its assessment of the economy.

Some investors believe the Fed did hint strongly at a September rate hike by using phrases such as the labor market “strengthened” and that “near-term risks to the economic outlook have diminished.”

Now that investors have had a chance to evaluate the Fed’s statement, today’s price action may actually reveal how they really feel about the chances of a Fed rate hike as early as September. Going into the Fed statement, investors had priced in about a 20% chance of a rate hike in September. At the close, the chance had dropped to 18%. The probability of a December hike was 50%. At the close it was 43%.

Daily September 30-Year U.S. Treasury Bonds
 3t-The main trend is down according to the daily swing chart. However, momentum has been to the upside since July 21.

The short-term range is 177’11 to 169’31. Its retracement zone at 173’21 to 174’17 is currently being tested. The direction of the market over the near-term will likely be determined by how investors react to the retracement zone. A downtrending angle passes through this zone at 174’03 today, making it a valid target also.

Since the main trend is down, sellers are going to try to stop the rally on a test of the retracement zone in the hopes of forming a secondary lower top. Buyers are going to try to drive the market through this zone. They will be trying to form a secondary higher bottom at 169’31 and possibly a re-test of 177’11.

Based on Wednesday’s close at 173’07, the direction of the market today is likely to be determined by trader reaction to the 50% level at 173’21.

A sustained move over 173’21 will signal the presence of buyers. An early rally will be labored because of potential resistance at 174’03 and 174’17. Look for an acceleration to the upside on a move through 174’17 with the next target angle coming in at 175’23.

A sustained move under 173’21 will indicate the presence of sellers. This could lead to a break into the steep uptrending angle at 172’15. This is a possible trigger point for a further break into the next uptrending angle at 171’07.

Watch the price action and read the order flow at 173’21 today. Trader reaction to this 50% level will tell us if the sellers are still in control or if buyers are taking over.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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