S&P 500 (Dec 12) INTRADAY
Review Unfortunately our long entry level at 1449 was just missed as the market pulled lower after the US cash open. Instead a more aggressive entry at the pivot level was the optimal trade as the S&P pushed back higher after better than expected Existing Home sales data provided further evidence that the US housing market recovery is gathering some momentum. It was a slow grind higher and it wasn't until 17.30pm that the market topped out exactly at our first profit target at 1459 before reversing back to close at the lows which is exactly where the session began.
Strategy It has been a nervous overnight session with Japanese export data disappointing as well as Chinese manufacturing PMI. The PMI numbers from the Eurozone’s heavy weights were mixed with France showing a desperately low 42.6 for manufacturing but Germany seeing improvements with their services PMI breaking back above 50. otherwise the news flow has been slow with the only other event of note being a Spanish bond auction that was well received. The S&P is currently locked in a battle at Tuesday’s low of 1449 and we await important US data in the form of Jobless Claims and Philadelphia Fed survey for further guidance on direction. At this point based on the fact that the Empire State manufacturing numbers on Monday were disappointing we expect similar from Philadelphia and so we have a neutral short strategy with an entry at yesterday’s low.
Alternative Scenario Bullish US data will push the S&P back up above the pivot and into the week’s range.
EUR/USD Spot INTRADAY
Review The currency pair was in a bearish sentiment yesterday morning on the back of profit taking from traders that had bought in on the recent risk rally that had taken the pair up above the 1.30 handle. We were of the belief that the profit taking would be halted around the 1.30 handle and were long here - as the fundamentals did not necessarily support a much bigger sell off. The entry level was obtained and tested for a rather long time which could have scared some traders out. If you held on to your position you would have seen your trade hit the first profit target, and the second just fell short by 8 pips.
Strategy The EURUSD has continued its downward trend this morning, and has broken through the critical 1.30 handle, despite the positive news out of Europe this morning, Germany leading the data releases by posting much better than expected PMI numbers. However, France disappointed to offset this. The Chinese slow down might be a contributor to the sell off, and we might have been witnessing some risk off movement as we also have seen bonds trading at the highs - although awaiting a gap fill in the bund that is yet to happen. As we assume this will occur, a rapid move here can lead to a decent bounce in the currency pair. The correlation between the US 10y has been good this morning and they have moved in tandem. This afternoon the Philadelphia Fed Manufacturing number is expected at -4.1. As we have stated the last week, any bad numbers will be slightly ignored due to the QE effect, and good numbers will be priced in more easily as it shows the recovery of the economy and are supporting the view of the QE bulls. Today's strategy is long at the key 61.8 Fibonacci, from year high/low, and a stop at the 1.29 handle.
Alternative Scenario A breach of the 1.29 handle can open up the way to the 50% Fibonacci the next few days.
US 10Y T-Note (Dec 12) INTRADAY
Review Our short entry level in yesterday’s strategy at 132.165 worked very well as resistance throughout the US session and defined the high of the day. However, there was no real momentum to the reversal lower and 132.110 was the only one of our key levels that was reached for a modest profit. Our main profit targets back on the morning’s lows remained we out of reach despite some very strong Existing Homes sales data from the US.
Strategy This morning has seen a slight risk-off tone as Japanese export data and Chinese manufacturing data disappointed overnight. T-Notes have returned back to the top of the FOMC range from last Thursday when Bernanke rolled out QE3. We feel there is scope for further moves higher for T-Notes as there are two positive influences that should dominate proceedings. QE3 adds demand for long duration Government debt and safe haven flows adds to this upside bias. Today we will put our attention on the Philadelphia Fed survey and the Initial Jobless claims. There is a decent chance the Phili Fed number will disappoint if the New York equivalent is anything to go by which posted worse than expected data on Monday. We intend to use yesterday’s high as our long entry leve; at 132.180 and look for a test of the Bernanke high from last week at 132.310.
Alternative Scenario Positive data from the US may lead to some risk-on flows that drive T-Notes back into yesterday’s range and therefore expect a test of the pivot level at 132.105.
Crude Oil (Nov 12) INTRADAY
Review The commodity was in a heavy downward trend yesterday, still on the back of the efforts that are being made by Saudi Arabia to cut the price in crude - which is a crucial effort for them to deter the US from releasing their strategic reserves ahead of the US election. At the NYMEX open the commodity sold off about $2.5 - and although the force behind the drop eased up, the low that was posted at 1800BST was in the same general area as we closed the day on. The strategy entry yesterday worked like a treat, and traders had to be quick to get in before the sell off started. Both targets were safely obtained.
Strategy The massive build in US inventories yesterday was expected by our analysts, and on the back of it we had a very generous second profit target which was safely obtained. The difference between the API and DOE actual and expected was rather big, and lately the API has proven a better indicator to what the actual release will be which deviate from historical numbers. This morning crude has continued to sell off, and due to the developments mentioned above we are expecting this to continue. The outlook of the worlds second biggest economy China is looking poor and the Ministry of Commerce stated the demand would remain weak for the next couple of months. Saudi Arabia has stated that fundamentals do not support the recent rising oil price - which we believe shows the inadequacy of the world leaders to develop with the markets, as the main drivers for crude now is the macroeconomic outlook - and this has overtaken supply as the main driver of the price. The short strategy today has an entry at the high of the day and we have placed the first target at the low of yesterday which gives us almost 100 ticks.
Alternative If risk assets should go bid, at these levels crude might follow up to about $94, although we would not expect it to go any further.