US 10 Year Notes, What's Next?

This morning, the ECB unexpectedly cut rates for both the main refi rate and the marginal lending facility by 25 bps, to 0.25% and 0.75% respectively. The Euro tumbled against the dollar and the European stock market rocketed up. Could this be the next stage in the currency war? Could any of these actions have been predicted by the price action of the 10 year note futures?

The following chart is the US 10 year notes futures contract, weekly time frame with a Schiff fork drawn using key swing points defined by the weeks of 4/9/2010, 11/5/2010, 3/4/2011. As you can see, the fork, with additional parallel lines (+120, -20) caught both the all-time high and the recent year low. Without going into depth on the median line methodology, suffice to say that the overshoot predicted the undershoot. And, that price is expected to rise (rates move inversely with price) to the center median line.

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Can we use Fibonacci patterns to validate the hypothesis that notes will increase in price and decrease in rates? Of course! Zooming into the recent swing low of this same futures contract, by looking at the 240 minute chart, we notice that the low in early September was a "perfect" 161.8 inverse head and shoulders pattern. When two different methodologies align, odds improve. The key swing points of the pattern are represented by yellow ovals. The destination price range for the pattern is represented by the yellow box and is based on the XY swing that produced the pattern "head." It is not "obvious" whether the BC leg has been put in yet. The turquoise hatch area represents the prices that we would expect to see if it had. Perhaps, "someone" knew the ECB plan and chose to continue buying the 10 year notes... 

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Returning to the weekly chart, but retaining the inverse head & shoulders pattern destination price box we see that a completion of the pattern is not "out of the question" based on the location of the center median line.

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If I had to bet, I would bet that 10 year note prices will continue to increase, rates will decrease, for the foreseeable future. If you don't have access to futures charts, then take a look at the iShares 7-10 Year Treasury Bond ETF, symbol IEF.