Italian Bonds Showing Mounting Signs of Reversal After Rally

  • BTP futures contract faltering against layer of resistance
  • Italy-Germany 10-year yield spread has resumed widening

Italy’s bond futures had the best month in seven in February. Chart patterns suggest that euphoria may not last.

The contracts show mounting evidence of a near-term top, with resistance at 130.99, which is the mid-way point of the decline in January that preceded last month’s rally. The bearish engulfing pattern at the top suggests the broader downtrend may be restored.

Signs of risk in the peripheral euro-zone economies are manifesting again as the spread between Italian and German 10-year bond yield has sustained a bounce from the 55-day moving average. That foreshadows further widening pressure in the days to come.

  • In BTP futures, overlapping price ranges, Monday’s bearish engulfing pattern against the resistance and reversal near the 55-DMA and the five-month downtrend line (130.85-131.22) all skew the risks to the downside
  • Support for the BTP futures generic contract is at 128.61, 128.14 and then 127.54, which is the low March 6; a closing break above 130.99 would invalidate the downside scenario
  • Sejul Gokal is a technical strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
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