FXStreet (Guatemala) - MacNeil Curry, CFA, CMT Technical Strategist at Bank of America Merrill Lynch explained that for much of 2014, US rates and most FX markets have been characterized by range-bound, choppy trading conditions and a relentless decline in volatility.
“Technical analysis says that these conditions are about to give way to a more directional environment and higher volatility."
"While there are many charts which point to this pending change, 5yr Treasury yields are the clearest example. Since last September, 5yr yields have been characterized by an increasingly well-defined contracting range."
"Now, evidence says that this range is poised to complete and the larger bear trend is set to resume. Triangle formations tend to give way to a strong trending environment, most often in the direction of the trend that preceded the Triangle."
"Conceptually, the pattern can be thought of as a market that is coiling like a spring, building kinetic energy as it matures. Once the pattern completes, that energy is released and a strong trending environment ensues."
"In the case of 5yr yields, we look for a breakout to the topside for 2.02%/2.05% and beyond. While we are highlighting the 5yr point, the entire Treasury curve should shift higher, in our view, with 5s leading."