in association with

Market Bulletin 27th January 2011

No respite for the Bunds

The Technical Trader’s view:
Euro Bund Continuous

135
100.0% MONTHLY CHART
100.0% 261.8%

126.53 130

124.60 The market is under

125 tremendous pressure –
118.48 High
because of the
120
succession of failed
supports dating back to
115
1999.

110
Most recently the
109.66 Low
horizontal band from the
105
Highs 124.60-126.53.

100

15000
10000
5000
x100
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

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This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 in association with
Euro Bund Continuous 137.5
137.0
136.5
136.0 WEEKLY CHART
135.5
135.0
134.5
134.0
Fibonacci Cluster 132.12 -134.44 133.5 The weekly chart shows
133.0
132.5
132.0
more detail of the failure at
131.5
131.0 the cluster of Fibonacci
130.5
130.0
129.5
resistance…
129.0
128.5
126.53/52 128.0
127.5
127.0
126.5
126.0
the market tried to bounce
125.5
125.0 from the 124.50/53 Prior
124.5
124.60 the High from 2005
124.50/53 Prior
124.0 High support and failed.
123.5
High support
123.0
122.5
122.0
121.5
121.0
120.5
120.0
119.5
119.0
118.5
118.48 High 118.0

D 2008 M A M J J A S O N D 2009 M A M J J A S O N D 2010 M A M J J A S O N D 2011 M A

128.53 Low
Euro Bund Mar 11 127.7
127.6
127.5
127 Low 127.4
127.3
127.2
DAILY CHART
127.1
January 2009 Prior High support 127.0
126.9
126.8
126.7
126.6
126.5
The daily price action shows
126.4
126.3
126.2
126.1
that the rally from the 124.53
126.0

125.47 Low
125.9
125.8
125.7
low was a channel - perhaps
125.6
125.5
125.4
125.3
a parallel flag - which broke
125.2
125.1
125.0
down.
124.9
124.8
124.7
124.6
(NB If it was a flag then they
124.5
124.53 Prior High
from the weekly 124.27
124.4
124.3
124.2
classically appear halfway
124.1
Continuation chart 124.0
123.9
123.8
down the move - suggesting
123.76 Low 123.7
123.6
123.5 another seven big figures on
123.4
123.3
123.2
123.1
the downside.)
123.0
122.9
122.8
122.7
122.6
122.5
122.4
122.3
Note too, the break through
122.2
122.1
122.0
121.9
the Prior Low at 123.76,
121.8
121.7
121.6
establishing powerful
6 13 20 27 4 11 18 25 1 8 15 22 29 6 13 20 27 3 10 17 24 31 7
September October November December 2011 February overhead resistance. The
bears are in charge.

The Macro Trader’s view:

The safe haven days of the Bund are clearly in the past. After the frenetic buying that
peaked in August, the Bund has been on a clear trend lower and it hasn’t been alone.

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This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 in association with

But given the Eurozone sovereign debt crisis still remains a live issue, and it was that very
crisis that sent the Bund and other Bond markets soaring on safe haven trading, what has
changed?

There are several factors now at work, but these are the key dynamics driving the market:
1. The growth outlook for the world economy continues to look positive, but whereas
earlier last year growth was driven mainly by China and India, the Euro zone and
the US are now contributing, and
2. The threat of inflation globally has become a real concern in both the large
emerging economies and the developed.

Staring with growth, the Eurozone economy has performed well considering the hysteria
generated by the debt crisis last year. Indeed there was a real fear that the Euro zone
wouldn’t survive in its current form and the real economy would take a hit. It didn’t.
Germany acted as a corner stone for the Euro zone rescue fund. And her economy
continues to power ahead aided by the French which together make up at least 40% of
Euro zone GDP, masking the weakness of the peripheral states that continue to struggle.

Additionally, the US economy, moribund for so long, has finally woken up. The Fed remains
concerned enough to stick with its QE2 program, but also acknowledges an improvement.
However, the US remains wedded to a fiscal policy that is building a huge mountain of
debt, fast approaching 100% of GDP, and although the Euro zone has rescued several of
its weaker members through the rescue fund, the total amount of debt in the Euro zone
remains unchanged; just redistributed.

Then there is inflation. The fiscal pump priming employed by the G20 saved the world from
a financial market meltdown and depression, but unlike the UK, the US and Japan are still
supporting their economies through expansive fiscal policies that longer term are
unaffordable.

The US President has a liberal agenda requiring massive public spending, which isn’t going
down too well with the US public, hence the midterm election results that saw the

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Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
E-MAIL MSTURDY@SEVENDAYSAHEAD.COM WWW.SEVENDAYSAHEAD.COM
This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.
 in association with
Republicans do well. Japan remains in the grip of a deflation that policy makers there seem
unable to shake off.

Additionally, the Fed, Bank of England and Bank of Japan have resorted to quantum easing
to help re-inflate their economies. But higher inflation is the likely price. In the US inflation
remains broadly contained and Japan is grappling with deflation, but the Euro zone CPI
rate is now above the ECB’s target and the UK has experienced CPI inflation well above
the official target for a prolonged period. The economies of China and India are also at risk
of overheating and the authorities there are tightening policy.

Both the Bank of England and the ECB have started to sound more hawkish about inflation
in recent weeks and this has unnerved the markets, especially the Bund and Gilt.

But where is the trigger that could send bonds lower?

Yesterday the S&P credit rating agency downgraded the Sovereign debt rating of Japan for
lacking a credible plan to reduce its deficit and control the National debt (well in excess of
100% of GDP).

For a long time traders assumed, as did we, this didn’t matter. Japan has large currency
reserves, runs a trade surplus and domestic buyers are the main investors in JGB’s, but it
appears Japan has reached a level of public indebtedness that make its credit rating
unsustainable.
If Japan’s rating can be cut, the Euro zone and the US other two look very vulnerable and
bonds no longer look safe.

Mark Sturdy
John Lewis
Seven Days Ahead

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Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573
E-MAIL MSTURDY@SEVENDAYSAHEAD.COM WWW.SEVENDAYSAHEAD.COM
This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sources
believed to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness or
accuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold or
held on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein were
considered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,
other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,
relationship or arrangement in relation to them.