Market Review
The S&P now trades just over 4% below the all time highs. The fact the move lower has happened is not overly surprising given the geo-political, monetary policy and economic data (EU) woes, however the timing of the move is interesting. The Russian activity on the border of Ukraine is not new, nor is the fact rates in the US may go higher. What has happened is that people are starting to notice. This may be too late for many bears that have been shouting at their screens over the last 6 months as seemingly significant negative news has been sidestepped. We are glad for the volatility after months of inaction on the back of central bank support. Yesterday the pivot levels came in strongly again providing effective strategies across US and EU equities. Bunds made new all time highs as 148.78 was easily breached and now trade just above the 149 handle, the EURUSD had a rare small up day (only the third seen in the last 18 days).
Today's Fundamental View
Today is all about central bank activity. We do not expect anything out of the Bank of England today even in the face of continued firm data out of the UK. Draghi has a more difficult task, especially given the Italian data yesterday which showed the economy was officially in a recession. Draghi only really has one option left in his war chest and we believe given the 200 pip move seen in the EURUSD over the last four weeks the pressure may be off him slightly to act now. However on the other hand there is still no sign of inflation. An interesting thought regarding the lack of inflation in the Eurozone is the increased pressure the falling oil price will continue to have on this data. We believe in the short term the EURUSD may be supported in the lack of commitment from Draghi to use his last card and we believe the trend in equities will continue lower. We do advise traders use pivot levels on their charts which have aided execution so clearly over the last two weeks of trading.Alternative View
Comments from Draghi that are more dovish than expected may weigh on the EURUSD to make new lows for the session and the S&P may test the high of August 4 th , 1937.50.
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