EUROSTOXX 50 (Sept 12) INTRADAY
Review The Eurostoxx traded sharply higher following yesterday’s open, driven by the optimism stemming from the European progress on the Spanish banking sector bailout. However the upside momentum was not sustained and the Eurostoxx pared all of the morning’s gains in the latter part of the session to post a second consecutive flat day. Our yesterday’s strategy entry s hort at 2,242 provided limited resistance to the price action and it was our stop level at 2,260 that defined the high of the day. Ov erall, the Eurostoxx continues to trade on the cautious side, without strong conviction to the upside, nor with sufficient selling pressure to close the post-EU summit gap.
Strategy Yesterday’s Industrial and Manufacturing Production data from France disappointed, with both numbers coming in lower than last month's data. Conversely, Italian Industrial Production posted a modest rebound. As we expected the trading momentum picked up yesterday as market participants reacted to the latest developments regarding Spain. Spanish 10-year yield receded from the 7% mark but only modestly, which provided some ground for optimism in the morning session. However, further clarity in the details outlined in the memorandum of understanding eventually switched the risk balance to the cautious side. We expect a co ntinuation of Spanish developments in the coming days, taking into account that the final agreement is not scheduled to be finalised before the end of the month. The economic data calendar for the session ahead is relatively light. Nevertheless, European developments continue to remain the focal point as a gauge for risk optimism. Save for optimism on the European front, we expect the Eurostoxx to be cautious on the upside in today’s session. Our entry short for today is at R1.
Alternative Scenario European headline risk continues to be the major caveat to our bearish positioning.
EUR/USD Spot INTRADAY
Review The EUR/USD traded lower throughout yesterday’s session, paring all of this week’s gains and made a new 2-year low at 1.2236. The scale of weakness in the single currency was perhaps most emphasised by the price action in the EUR/GBP which made a new 4-year low and firmly established trading below the 0.8 handle. Our yesterday’s strategy entry short at 1.2324 worked perfectly, with the initial positivity in the morning trade acting as a catalyst to drive the currency pair above the 1.23 handle. Both of our profit targets at 1.2273 and 1.2256 were achieved before the European close. We see the next medium-term support coming in at 1.2151 (29th June 2010 low) which was also the right shoulder confirmation for the inverse head and shoulders pattern t hat played out during that summer.
Strategy From the technical perspective, yesterday’s move to the downside confirmed that the EUR/USD remains strongly bearish following Monday’s consolidation of last week’s losses. Developments on the European front are likely to continue to govern to a large degree the behaviour of the single currency. The event that might compromise our bearish view on the EUR/USD for the session ahead will be tonight’s release of FOMC minutes from the last meeting, which resulted in the extension of operation twist. Taking into account that the outcome of last FOMC meeting is known, the Fed extended operation twist until the end of the current year and that US data continues to be on the soft side but not sufficiently negative to warrant further easing, tonight’s FOMC minutes might play out as a non-event. For the session ahead we continue to position ourselves on the bearish side, with today’s entry just above the pivot at 1.2281. Our targets are at yester day’s low and S1.
Alternative Scenario European headline risk will continue to be the main caveat.
BUND (Sept 12) INTRADAY
Review The Bund continued with consolidation of last week’s gains in yesterday’s session and remained rangebound between 143.66 and 144.24 throughout the session as the equity space endured a session of two halves and the single currency weakened further. Our yesterday’s entry long at 143.79 was initially challenged to the downside but eventually provided support for the price action ad our first profit target was reached by the end of the European trade.
Strategy Yesterday’s session started off with a degree of optimism following the emergence of details with regard to the Spanish banking sector bailout. However, the positive tone was short-lived as the details on conditionality for the disbursement of funds highlighted that funds will be initially channelled through the Spanish government. In addition, EU officials indicated that the memorandum of understanding for Spain is likely to be finalised by the end of the month - a delay which was not welcome by markets.
Comments from the Bank of Portugal that the country may require more time to achieve its fiscal targets and comments from the Italian PM Monti who said that he could not rule out Italy requesting funding via ESM further added to the negative sentiment in the latter part of yesterday’s session. For the session ahead we prefer to position ourselves with an entry long at S1, targeting yesterday’s high and R2.
Alternative Scenario In the absence of notable macroeconomic data, European headline risk will remain the main caveat.