Magazine article American Banker

Traders Say Technical Concern May Force Rate Futures Lower

Magazine article American Banker

Traders Say Technical Concern May Force Rate Futures Lower

Article excerpt

CHICAGO -- Concern over technical patterns on the price charts may force interest rate futures lower in the next few days.

Treasury bond futures will probably test a critical support area and are set to fall further if they reach it. In addition, they have formed another bearish pattern pointing to lower prices.

But should the critical support hold -- it is lodged around 67-12/32 to 67-16/32 in the contract for June delivery -- prices will stabilized or could even move a little higher, traders believe. However, "the bias is downward, and the trend is negative," said Allan Leventen, president of Twenty-first Futures.

There is a chance, though, that prices could stabilize at slightly higher levels following Friday morning's rally,when bond prices jumped 29/32s despite a bigger than expected rise of $3.6 billion in money supplies. "It's not a short covering rally. It's for real," said Larry Morgan, institution marketing coordinator at Dean Witter Reynolds Inc.

Traders attributed the buying to news in February's unemployment report of a shortening of the factory work week. But some suggested that the data may have been corrupted by bad weather over the period.

The market will likely focus in the next few days on the technical picture in the absence of any other key factors. Two such factors could intrude: the federal funds rate and the strength of the dollar. Both have the potential to override the technicals if they change to any degree. Fed funds, however, are generally expected to move higher, if at all, while mere mention of the dollar evokes fears that any weakening will mark the end of its two-year run-up. Traders are desperately afraid that intervention by central banks will trigger such a reversal. According to the currently popular gloom-and-doom scenario, this would unleash inflation in the United States and cause an outflow of foreign capital that would make it impossible to finance the government's spending deficit. …

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