FxWirePro: Bund suffers big decline from key resistance on Draghi’s comments

After testing a key resistance line for the past two weeks, the Bulls in German bund threw their towels this week as the European Central Bank (ECB) chief Mario Draghi indicated that the central bank’s next step is likely to be a tapering of its asset purchases. Speaking at the annual economic policy conference in Portugal, Mr. Draghi said that the ECB's stimulus policies are working and will be slowly withdrawn as the economy accelerates. However, he warned that adjustments would be gradual, "any adjustments to our stance have to be made gradually, and only when the improving dynamics that justify them appear sufficiently secure." He added, "Political winds are becoming tailwinds……….There is newfound confidence in the reform process, and newfound support for European cohesion, which could help unleash pent-up demand and investment." He also said that the deflationary pressures have been replaced by reflationary pressures.

German 10-year bund, which was testing key resistance line around 165 declined sharply yesterday after Draghi’s comments and continuing tits decline today. It is currently trading at 162.9. We have remained short in bund since October last year. While some of our targets around 160 and 159 got reached, the price has bounced back above our entry around 162.5 area. We have forecasted bund’s decline to 151 level and we don’t see any need to change the targets for now.