As the NFP rate creeped toward the Fed's 6.5% target, the bond market acted ahead and as it closed 2013 on the lows, it started 2014 on the lows, only to fail in moving lower and squeeze higher during the month of January. This upside reversal caught shorts by surprise as it squeezed the market from 12723 to 13503 to stop against major resistance from October of 2013. The reversal into this resistance squeezed out the short side, however for the next 3 months the bond market stabilized sideways to consolidate the reversal and in turn develop a base or in technical terms an inverted head/shoulder pattern from February to April. With April's low retesting March lows and holding, this saw a push back to breach the 3 month highs and confirm the inverted h/s pattern. The coiled pattern once again left shorts selling the market trapped and with the breakout above the 3 month high, this gave fuel to expand this inverted h/s target and squeeze out October 2013 highs. This was done in May, confirming the lows of 2014 as a failed breakdown and a reversal in trend. So far since the October highs being taken out, this has led the bond market to further squeeze another 4 handles as late buyers now come in after the confirmation and chase the market up. Going forward, major resistance is being tested from June of 2013 in the bond market with new buyers chasing prices above last October's highs. A move through 14028 squeezes this resistance level and retraces the bond market 50% from its 2012 high to its 2014 low. A break below 13606 reverses short term upside momentum to shake out longs chasing the market and give way to test downside support at old resistance 134, followed by 129 as major support off the year lows.
The Yen also started the year on the lows and reversed higher during the first month of 2014. This caught the market off guard again, squeezing out the short side with the move from 9486-9926. Since this January upside squeeze, the Yen, as the bond market, went into a sideways consolidation period as it turned lower, however held above the January lows to keep shorts trapped. The consolidation and coiling led to an inverted head/shoulder pattern just as the bond market, with a squeeze in May to break above the neckline of 9870 and reach its 200day moving average for the first time since November of 2013. In contrast to the bond market, the Yen has had much more difficulty in expanding this range and seeing new buyers chase the market at these levels. For now investors are favoring the hedge of stocks into the bond market. Eventually this should rotate from bonds into yen and gold. Short term, the Yen remains in an uptrend with a target of 10150 to expand its 3 month range. Failure to hold the May low gives way to retest the April lows.