S&P 500 (Sept 12) INTRADAY
Review Yesterday we implemented the same strategy as we had done on Monday for the S&P as we expected a similar session with the market remaining relatively neutral but being able to consolidate and hang onto the gains from the back end of last week. Again this strategy worked very well as our long entry level at 1376 provided support at 15.00 and the market bounced off this level and moved up to obtain our first profit target at 1381.25. The S&P then drifted back to our entry level and good support was found around this area for a couple of hours before the market managed to climb back up to our first target again. Going into the close a large institutional sell order of 60k contracts forced the market down through the lows and stops were triggered resulting in the market closing at 1374.
Strategy The S&P has recovered from the spike lower into last night’s close and is currently finding support around the pivot level at 1377.25. Overnight and this morning we have seen mixed Manufacturing data from around the world with initially the Chinese numbers buoying markets as although it came in a touch under expectations it still maintained a level above 50 to indicated expansionary conditions. The Eurozone PMI was roughly in-line and maintained its three year low and the UK data was the notable disappointment coming in well below expectations at 45.8. This afternoon the big events are ADP Employment at 13.15BST, ISM Manufacturing at 15.00BST and the FOMC statement at 19.15BST. We feel the market can again maintain the current levels and we expect the FOMC statement to make no policy changes although for it to be marginally more dovish than last time. Therefore, the main event of the week will be tomorrow’s ECB decision and the market should stay range bound ahead of this event.
Alternative Scenario Bad US data may allow a break of the overnight low and a drift down to S2 at 1361.75.
Review From the morning yesterday at 7am to just before the close, the currency pair traded on a perfect upward moving trend line, which after it was confirmed created a couple of good trading opportunities - mainly at 1500BST and 1915BST. News of note yesterday was the general negative tone set by European leaders as they (as expected) are trying to downplay the significance of the ECB efforts that are in the making. Further, Germany is putting rocks in Draghi's shoes by continuing contradict his newfound epiphany of restarting the SMP program. The lack of retracement yesterday outside the trend line made our strategy entry unattainable, though our first target was obtained.
Strategy This morning ECB's Weidmann commented on ECB's efforts surrounding tomorrows press conference and significantly down played it. This led to a 30 pip move down in the EURUSD. However, after a few minutes the market retraced as it turned out the comments were about five weeks old.. Since then the currency pair has been range bound. Germany auctioned Bobls this morning with a record low yield - again as expected, as the risk aversion in the euro zone is ever present. You will need more than one set of hands to count the traders that have hurt themselves shorting the German bond market since Greece announced their struggles in 2010. This afternoon it will be interesting to see the ADP Employment being released, ahead of the NFP number on Friday. As our analysis shows - the ADP number tends to be more stable than its big brother, and it has served well as a lead indicator of how the NFP will perform. Another key event for the day is ISM Manufacturing (expected 50.2). Last month saw a post of 49.7, which indicates a contraction in the manufacturing sector in the US. We are eagerly anticipating the reviewed number in addition to the headline. Finally we have the FOMC statement released at 19.15BSt and we expect no policy action but a slightly more dovish tone. Today's strategy is neutral long - again on the back of the positive outlook on Super Mario's press conference tomorrow.
Alternative Scenario Bad data can lead to a safe haven move across the board, and we aim for 1.22 for the EURUSD.
US 10Y T-Note (Sept 12) INTRADAY
Review Our entry long yesterday at 134.200 was tested to the limit on Tuesday as shortly after slightly better than expected macro data held gains in T-Notes in check as they continue to trade in independence with the outlook given by risk assets. Our level was reached only after 18:00 and narrowly avoided being stopped out before spending the rest of the session oscillating around our entry point. Volume remained light as all eyes focus on central bank activity with the FOMC later this evening.
Strategy We see a slightly lower than a 50-50 chance that the Fed might extend the exceptionally low language to mid-2015. A range of other tools is likely to be discussed for future action. Overall however the market is likely to remain underwhelmed by the actual action taken by the Fed although the language is undoubtedly set to remain supportive of future action should deteriorating data warrant it to be necessary. Also, on a side note an interesting thought would be to see just how aggressive/passive the Fed are this evening, as a leading indicator to Friday's Non Farm figure. Overall we do not expect any significant action by the Fed today or volume in the lead up to the announcement and therefore will look to trade the edges of the range set yesterday with an entry at S1 134.135 and the target at 135.000 and 135.105 equal to yesterday.
Alternative Scenario Bullish language from the Fed that supports equity markets still further may weigh on Treasuries breaking the range set yesterday.
Crude Oil (Sept 12) INTRADAY
Review Yesterday's session saw an unexpected bearish day as crude dropped $3 from high to low. The downward pressure was mainly due to speculation that the much anticipated stimulus that will come from central banks tomorrow is not going to be as widespread and big as expected, and decent earnings from the US did not help on this either. At NYMEX open we fell to the entry of our strategy which worked well as support, and the market took us half way to the first target, before continuing its sell off, which lead our strategy to become stopped out as stop orders were triggered forcing the market lower.
Strategy This morning started just the way yesterday's ended - with hawkish comments out of Germany's ECB representative Weidmann that the central bank should not overstep their mandate, and that governments should not overestimate ECB possibilities. Later on it turned out that these comments were about five weeks old, and the markets retraced. Late last night API inventory numbers were released with a massive draw down, -11.6 million vs previous +1.35 million. As always, the markets do not react too much on this news as the DOE numbers are released during today's session which the market reacts more to. Further, it was somewhat expected as the regulators blocked the restart of Enbridge Line 14, which carries crude from Canada to Chicago area refineries - and most of the draw down can be attributed to this particular event. This afternoon the DOE numbers are expected at -1.05 million, which deviates heavily from the API numbers. Further to this, the ECB's press conference is tomorrow, and despite some traders getting nervous, and some European leaders trying to wind the market up with bearish comments - we remain that this is Super Mario - plumber and economist that can fix the leak in the EU pipes.
Alternative Should the DOE numbers show a build the commodity will most certainly sell off, and we target the $85 handle.