FxWirePro: 10-year Bund rallies post-ECB, short call remains active

After the European Central Bank (ECB) announced fresh stimulus of €540 billion to be phased over next year, after the current purchase program expires in March 2017, the 10-year bund has reversed its recent decline triggered by inflationary fear after the Republican candidate Donald Trump secured victory in the US election. After bottoming in 2011, during the European debt crisis, the 10-year bund has steadily marched into higher highs and reached 168.3 in September. Since then, it has declined and at a faster pace after the Trump victory to reach 159.1 by the mid-November.

We have already recommended going short in the 10-year bund at the break of 162.5 to the downside with a short term target of 160 and a long-term target of 153. We recommended the stop loss around the 168 level. We also forecasted that the bund is unlikely to correct beyond 163.5, however, that was before the ECB announcement.

After reassessing our call post-ECB, we revise the plausible correction level from 163.5 to 165 but maintain the downside outlook and recommend using the rally to enter fresh short positions.