Review The positive tone emanating from the Bank of Japan’s expansion of bond buying programme by JPY 10tn turned out to be unsustainable at the start of yesterday's European trade, prompting the Eurostoxx to close the gap on the open and to drift lower throughout the European morning. However, the downside pressure abated mid-morning allowing the index to drift back to unchanged on the day. Our yesterday’s neutral entry long at 2,546 was challenged to the downside during the morning sell-off and only provided a trading opportunity following the US cash open. Our first profit target was subsequently reached.

Strategy US housing data was mixed, albeit with a positive bias: Housing Starts at 750k were stronger on the month in August but missed on the consensus expectation of 767k, while Building Permits at 803k posted a rise on the month and also beat the consensus expectation of 796k. Existing Home Sales data posted a strong rise in August, with the headline coming in at 7.82m vs. exp. 4.56, vs. prev. 4.47m. The HSBC Manufacturing PMI for China released overnight was stronger on the month at 47.8% vs. prev. 47.6% but the data remained below the key 50% mark, thus failing to provide a positive tone to risk assets in the overnight trade. For today’s session we are keen to position ourselves with an entry short at R1 targeting S1 and last Thursday’s low.

Alternative Scenario Positive surprises on the economic data front might compromise our stop at R2.



Review The EUR/USD failed to stabilise above Tuesday’s lows following the overnight rally that preceded yesterday’s European open and spent the rest of the session range-bound between the 1.30 handle and 1.3085. Our yesterday’s neutral entry long at 1.3063 initially started to work well with the currency pair fining support at the level following the pullback that we aimed to use to target an extension higher. However, the sharp downside that shaped the former part of yesterday’s trade brought the price action to test our stop level at 1.3029. The EUR/USD drifted lower overnight but remained within yesterday’s range, with the 1.30 handle providing support for a bounce in the currency pair as I type. However the integrity of the 1.30 handle as support might be getting diminished now.

Strategy Following a two-day lull in notable economic data, today’s calendar bodes well for an eventful day on both the European and US fronts. Fist thing this morning, we will be looking out for preliminary readings for French, German and EU Manufacturing and Services PMI data, with Italian Industrial New Orders and Industrial Sales to follow at 9AM BST. Thereafter, our focus will shift to US employment data, with Jobless Claims expected at 1:30PM.EU Consumer Confidence along with Philadelphia Fed will conclude the data releases for the day. For today’s session we prefer to position ourselves with an entry short at the pivot, targeting yesterday’s low and S2.

Alternative Scenario Much weaker than expected US data might prompt dollar weakness as part of a QE trade.



Review The Bund gapped lower at yesterday’s open but quickly established itself on the front foot and pushed to test the 140.00 handle where it set the high of the day. With regard to our yesterday’s strategy neutral entry short at 139.35, we had to resort to our alternative scenario as we saw a high volume break of the entry level to the upside lead to a test of our stop level at 139.67.

Strategy Yesterday’s Schatz auction yielded a strong result, with the bid/cover ratio coming in at 2.1 vs. prev. 1.5. The yield ticked ever so slightly higher from 0% to 0.06% following ECB’s announcement of OMT a fortnight ago. The strong demand for German 2-year paper resulted in a broad-based rally in German fixed income, notable in the Schatz, the Bobl and the Bund. This morning we will be looking out for the results of the Spanish sovereign issuance, with the Tesoro planning to auction off 10-year paper. Having tested the 6% mark on Monday, the Spanish 10-year yield corrected throughout the week to settle at 5.69% in yesterday’s trade. Strong demand for Spanish paper in today’s auction should provide a positive tone for the sentiment. A strongly disappointing auction also has the scope to surprise market sentiment to the upside on assumption that escalating yields might prompt Rajoy to submit a request for EU aid. For the session ahead we prefer to position ourselves with an entry long at the pivot, targeting R1 and last Thursday’s high.

Alternative Scenario A stronger Spanish auction might prompt the Bund to test our stop level at S1.