Markets to Watch This Week – June 10-Year Treasury Notes and June 30-Year Treasury Bonds

In December, the Fed originally indicated that it may follow its first rate hike in almost 10 years with as many as four this year. However, financial volatility highlighted by a steep sell-off in the global equity markets prompted speculation that the Fed would move much more slowly.

This week’s key event is the U.S. Federal Reserve’s Federal Open Market Committee meeting on March 15 -16. The committee is expected to discuss raising interest rates at the meeting, but don’t expect them to do so.

This assessment isn’t based on my opinion but rather the Federal Funds Rate futures contract and the CME Group FedWatch Indicator. These tools have long been used to express the market’s views on the likelihood of changes in U.S. monetary policy. As of March 11, the indicator shows the probability of a March rate hike at 0%. The probability of a rate hike in June rises to 43%, in September to 61% and in December to 75%.

Although the Fed Funds Indicator suggests at least two rate hikes this year, likely in June and December, conditions aren’t right at this time for such a move. There are several reasons behind this line of thinking. Among them are low inflation, driven by the fact that oil prices are still far below their 2014 top and an economic slowdown in China. Negative interest rates in Europe and Japan have also make it more difficult for the central bank to raise rates.

In its new statement, the Fed is not likely to try to build a case for holding rates near historically low levels, but rather it is going to explain that it is keeping its options open and that a rate hike is still “data dependent”. It is also not expected to significantly change its economic models or policy forecasts.

Since its last meeting in late January, the U.S. economy has showed signs of strength that might support a rate hike eventually. These include the gradual rise in oil prices since its lows in late January and mid-February and a strong recovery in the U.S. equity markets. Additionally, the labor market continues to improve.

The charts indicate that a hawkish Fed statement is likely to be bearish for 30-Year U.S. Treasury Bonds and 10-Year U.S. Treasury Notes. Rising interest rates should be bullish for the U.S. Dollar because they will make the Greenback a more attractive investment.

JUNE 30-YEAR U.S. TREASURY BONDS

This week begins with the June 30-Year U.S. Treasury Bonds in a downtrend according to the daily swing chart. The chart indicates the market is not in a position to change the trend to up. However, because of the prolonged move down in terms of price and time, it is in the window of time for a potentially bullish closing price reversal bottom.

The main range is 151’15 to 169’12. Its retracement zone is 160’14 to 158’10. If there is going to be a reversal to the upside after the release of the latest Fed monetary policy statement then it is likely to occur when the market is trading inside this range.

JUNE 10-YEAR U.S. TREASURY NOTES

June 10-Year U.S. Treasury Notes start the week in a downtrend and already testing the lower-end of a major retracement zone. However, its reaction to an uptrending angle inside this zone is likely to determine whether it changes direction and reverses to the upside.

The main range is 125’02.5 to 132’20.5. Its retracement zone is 128’27.5 to 127’31. The key angle to watch this week comes in at 128’06.5 on Monday and moves up to 128.10.5. Trader reaction to this angle will likely determine the near-term trend of the market.

A sustained move over the angle currently at 127’06.5 will indicate the presence of buyers. This could create enough upside momentum to challenge the major 50% level at 128’27.5. This is the trigger point for an acceleration to the upside.

A sustained move under the angle at 127’06.5 today and at 127’10.5 on Wednesday will signal the presence of sellers. This should trigger a fast break into the main Fibonacci level at 127’31. This level is the trigger point for a steep break.

Having identified the price zones in which the T-Bonds and T-Notes are likely to react this week, we are going to monitor the price action and read the order flow of these two markets while they are testing our key areas. The catalyst for our trade is going to be the Fed’s announcement at 2:00 p.m. ET on Wednesday.