FxWirePro Call Review: Prepare to add short positions in bund

This is yet another review of our previous call, given out in October last year to short the 10-year bund at the breakout of 162.5 with an initial target of 160 area and subsequent longer-term target of 153. The article is available here, http://www.econotimes.com/FxWirePro-10-year-bund-heads-for-a-sell-breakout-367667

In a subsequent article, we have reaffirmed our outlook and also shared our forecast that the spread between the 2-year bund and the 10-year bund would widen over time. That review is available here, http://www.econotimes.com/FxWirePro-Keep-riding-the-bund-short-call-review-397028 . In addition to that, In January, we had called on our readers to go short in 10-year bund and long the German benchmark stock index around 11560.

In our review on 28th February, we warned our readers that our short call in bund is under threat due to election uncertainties in Europe and warned that it might break the stop loss around 168 if the Dutch election turns out in the favor right-wing candidate Geert Wilders. However, that has not happened and thankfully we maintained the stop loss. The 10-year bund reversed course after reaching as high as 166.3

Since our last review back in September, the 10-year bund has traded within a small range and is currently hovering in the middle of a declining range, as can be seen in the chart.

Why write the review, if nothing has changed?

Nothing has changed from a price point of view but a lot has changed fundamentally, as well as technically. Last weekend, after months-long negotiations, the tri-party coalition talks involving incumbent German Chancellor Angela Merkel’s Christian Democratic Union (CDU) with her sister Party Christian Social Union (CSU), pro-business Free Democratic Party (FDP), and Greens failed to produce any stable government and now, the abrupt exit of FDP from the coalition talks have pushed Germany to an uncertain political territory and clouded German Chancellor Angela Merkel’s future as the leader of Germany.

The setback has boosted the safe-haven demand for the 10-year bund and the chart clearly shows that 10-year bund is approaching the ceiling of the range that has been in place since July 2016.

We would like to urge our readers to add short positions in the 10-year bund as it approaches the ceiling around 163.5-164 area.