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J.P.Morgan recommend “investors shift overweight intra-EMU exposure after the recent widening move and enter long 10-Year Spain vs. Germany.”

• They note that “intra-EMU spreads have been under pressure since the December ECB meeting.”
• They believe that “the widening was likely due to a combination of a relatively hawkish delivery from the ECB, heightened political uncertainty in France and liquidations of overweight tightener positioning. Also, the typical weak market liquidity around year-end likely exaggerated these moves.”
• Furthermore, they “remain of the view that heavy January supply will be well digested by the market, especially given attractive valuations after the recent sell-off/spread widening.”

• RES 4: 107.365 High Dec 12
• RES 3: 107.170 High Dec 20  
• RES 2: 107.065 20-day EMA 
• RES 1: 106.965 High Jan 3     
• PRICE: 106.715 @ 10:27 GMT Jan 6   
• SUP 1: 106.695 Intraday low             
• SUP 2: 106.680 Low Nov 20 (cont)  
• SUP 3: 106.645 Low Nov 18 (cont)
• SUP 4: 106.625 2.00 proj of the Dec 2 - 6 - 12 price swing

The current bear cycle in Schatz futures remains intact and recent weakness, including today’s fresh cycle low, reinforces this theme. The Jan 3 sell-off confirmed a resumption of the bear leg and sights are on 106.695, the Nov 20 ‘24 low (cont). Initial firm resistance is seen at 107.065, the 20-day EMA. A clear break of it would highlight a potential reversal. For now, short-term gains would be considered corrective.