Examples

Contrary to our bearish call for Q2 the first 2 months showed continued demand producing a rise of 9 points and record low yields. The majority of this rise has been reversed during June as profit taking has developed. While it is likely that June's decline will extend in the coming weeks, the underlying tone for Bunds remains positive - evidenced by trend following programs (DMI) which still show investor price action posting a greater % of higher highs measured against lower lows. Therefore we look for initial downside to be temporary and limited and our call for the 3rd Quarter of this year is Bullish and to Buy Dips while prices stay above 136.44. The immediate target is 143.41, half of June's net losses, with a move beyond that point focusing on 146.89, June's peak, or even 149.00.

The risk to this call is that significant buying on dips does not take place as selling pressure is being under-rated. This would be signalled by a move under 136.44, a 38% pullback of the 2011-12 rise, with further downside then focusing on broader corrections of 133.21 and 129.97.