Market Review
The equity markets yesterday were relatively contained compared to last weeks volatility and didn’t see much movement in either direction. In the S&P there was a move down to the 50% Fibonacci level from Friday’s impressive 30 tick spike, though this was retraced to levels that were traded in the morning hours on , and ultimately it did not end up moving anywhere. The EURSUD sold in the morning but was caught in a range in the afternoon. US10Y hit the entry point (High of Friday) in mid afternoon and subsequently sold off towards the first target in the evening. Developments were few in the MH17 situation, where fingers continues to be pointed without any formal consensus being made. US President Obama held a press conference in the late afternoon but had little new to report on the situation.Today's Fundamental View
After yesterday’s constrained market it has been good to see the EUR/USD move down through the 1.35 handle in a rather aggressive manner, to meet temporary support just above the 2014 low set in February. As this is tested further we fully expect it to break, assuming our CPI estimates for today’s session is correct. The number is one of the most anticipated this month, some may put it up together with the Non-Farm Payrolls number this month, meaning we can expect some considerable continuation of the movement should the number come out higher or lower than expected. If higher, market will continue to price in an interest rate hike for early in Q2 2015, compared to the relative market consensus at this point in time which has been communicated to be around mid summer. The opposite outcome of course will lead to widespread USD weakness and a bidding tone in treasury notes, and one may also do a correlation trade on the German Bund. Equities in general may be a more difficult call on increased inflation, though we ask where else investors should put their money? American bonds would be out, so the only remainder is gold, whose upwards movement may be halted significantly once the interest rate gets hampered with. For this reason we still believe a break of the 2000 handle is feasible, and the central bank policies that were implemented around the beginning of this decade continues to play a vital role in market stability, amid many traders and investors will argue heavily mispricing. Today’s strategy will be long equities and crude oil, the latter for obvious geo-political risks that have proven not to affect equities to the extent we would normally see.Alternative View
Comments from Russian officials may halt the move up, though this should still lead to USD strength in a risk off move. Please remain aware of all developments coming out of Ukraine, Russian and the Middle East and keep a conservative outlook with regards to risk. Over exposure in markets with such uncertainty is dangerous and should be avoided.
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