EUR/USD downside looks attractive

Last week’s market action

Last week the E-mini S&P 500 posted 5 consecutive up days culminating in Thursday and Friday’s double top being just 5 ticks shy of the all time high set back in February at 2117.75. Most of the upside catalyst stemmed from generally better than feared corporate earnings from the likes of Coca Cola and Amazon. EURUSD finished the week on the up with Friday’s upside taking the currency pair up above the 17th April high at 1.0858 as US economic data in the main continued to disappoint. It was the turn of Durable Goods orders to miss expectations on Friday and this continues now a long run of bad form for US data with the Bloomberg economic data surprise index now at negative levels not seen since 2009. T-Notes saw some large downside on Wednesday in a move lead by the bund, but spent Thursday and Friday recovering the losses and maintaining a yield still below 2% on the basis that there is no Fed rate hike anytime soon. Crude oil had a relatively quiet week, with the exception of a sharp move higher on Thursday, treading water just below the high of the year set on the 16th April at $58.82.

Today’s View

Markets seem a little uncertain this morning in terms of direction. We have an important couple of weeks ahead. This week sees US Q1 GDP data and an FOMC statement due on Wednesday as well as on-going earnings reports with Apple due today after the close. Next week sees the UK election as well as the latest Non-Farm payrolls report and with the March figures coming in well below expectations traders are looking for the April numbers to give us insight into whether there is a genuine slowdown in the labour market or whether March was just a blip. The Asian session was strong with rumours of PBoC looking at rolling out some kind of QE programme but then the European situation still looks fragile with plenty of Greek headlines over the weekend. European stocks have been choppy as a result this morning with the S&P looking like it has a little more upside appetite. However, we feel that whilst there maybe an ‘Apple bid tone’ ahead of their earnings report tonight, we still see the S&P as looking toppy around the February highs and we look for a short entry here. For T-Notes we expect an inverse correlation and have a long bias. We feel the downside potential looks the most attractive for EURUSD and some mild Dollar strength to push oil prices lower. The only data of the day of any note will be the US Services PMI data due at 14.45pm.