Cable pulls back after 10th September rally ended

Market Review

Yesterday’s session may be the most volatile this week with a vast amount of data releases through the US session as well as the Scottish vote for independence finally getting under way. The data revealed lower than expected building permits by a marginal amount; however with housing starts on the back foot as well and being one of the most forward looking housing indicators this did not add to the positive sentiment the S&P has been in. The initial jobless claims was better than expected and is down at the lowest levels we have seen in years, indicating the labour market is improving markedly. Overnight as the Scottish no vote majority started looking more and more certain the Sterling strengthened to is highest level against the US dollar since the first two days of September. No entries were obtained during the afternoon session.

Today's Fundamental View

This morning has seen a pullback in cable on the back of the rally we have witnessed since 10th September. Placing a Fibonacci retracement we can clearly see how the 38.2% level has worked well as support, though the 50% in conjunction with the high of the 11th we can clearly see stronger support and a better entry point here should the market continue to retrace. The data calendar today is empty, so there will not be much from the US which may help drag the currency pair lower. As the no-vote in Scotland settles today, another country split up will take centre stage as Catalonia will decide on whether there will be a democratic vote on whether or not they choose to stay with Spain. The move is more dramatic than Scotland considering Spain’s financial state compared to Britain, as well as the amount of revenue the region generate as a percentage of the GDP. The S&P has this morning pushed through to make new all time highs, which is indicating that the risk rally is not over, but merely paused for the uncertainty in northern UK. We urge traders to be careful reading too much in to the vote in terms of the FTSE index, as very little of the large macro index’ revenue is actually generated within the borders of the country it is registered in. Today’s stock of note is the Alibaba IPO which will be listed on the Standard and Poor‘s in what will be a record IPO. The stock will not be eligible for the S&P 500, as it is not a US company. Either way, this listing will have an impact and will be an interesting stock to watch the next few weeks. Along with this strategy we have attached a Alibaba specific report on how we would trade it and what we believe will be a fair price for entry on the company after it has listed. The market is likely to be slow for the most part today, though as Moody’s is widely expected to downgrade France we may see some short term volatility. Overall we are bullish on risk assets today as well as crude oil, though favour the downside in the EURUSD.

Alternative View

Any geo-political risk should be carefully analysed, with continued focus on Ukraine as well as US data being a key catalyst for movement today. Monetary policy comments from the US will carry weight, as will the ‘No’ vote in the Scottish independence referendum.