EUROSTOXX 50 (Sept 12) INTRADAY
Review The Eurostoxx traded progressively higher in anticipation of Draghi’s press conference in yesterday’s session but finished the day with a loss of 3.09%. The downside momentum in the Eurostoxx following the press conference resulted in the index paring more than 50% of last week’s gains. Our yesterday’s strategy entry short at 2,342 was stopped out amidst the volatile trade during Draghi’s speech.
Strategy In his speech, Draghi noted that the ECB may buy peripheral sovereign bonds: “...may undertake outright market operations of a size adequate to reach its objective…”. The involvement of EFSF will entail standard conditionality - with countries receiving aid having to register first. Overall, Draghi’s tone might be consistent with the Eurozone muddling through the crisis. However, it is not quite the response that was warranted after last week’s bold comments and we perceive the hangover from yesterday’s events to spill over into today’s session. We are once again back to monitoring Spanish and Italian yields for signs of further flight out of these sovereign bonds.
The main data release for today will be in the shape of US Nonfarm Payrolls and Unemployment Rate at 1:30PM BST. For today’s session we continue to maintain a bearish view on risk assets and would prefer to position ourselves with an entry short at the pivot.
Alternative Scenario Stronger than expected NFP data might prompt the Eurostoxx to test R1.
EUR/USD Spot INTRADAY
Review The EUR/USD started yesterday’s with a strong bid tone which brought the currency pair to test the 1.23 handle following the rate decision announcement from the ECB. As a result of initial volatile trade during the ECB press conference the EUR/USD tested the 1.24 handle where it set the high of the day before plunging 270 ticks to set the low of the day at 1.2134. The currency pair set yesterday’s high just below our key level 1.2407 (28th June low) which we mentioned in our Monday’s strategy as a critical technical barrier to the upside. Following the test and firm rejection of the 1.24 handle, combined with the disappointing tone from Draghi in yesterday’s press conference, the technical picture for the EUR/USD is conducive to a test of last week’s low at 1.2042 in the short-term. Our yesterday’s strategy entry short at 1.2264 was based on our view that stronger dollar following the FOMC minutes and downplayed expectations ahead of ECB’s press conference might keep the risk appetite contained. However, the bid tone in the Early European trade brought the currency pair to test hit our stop.
Strategy Overall, the start of ECB’s bond buying activity remains unclear in terms of timing, with delays most likely due to the procedures as part of EFSF conditionality. We expect yesterday’s developments on the ECB front to continue to weigh on risk assets in today’s session, save for a positive surprise on the NFP front. For today’s session we prefer to position ourselves with an entry short at 1.2218, targeting yesterday’s low and 25th July low.
Alternative Scenario European headline risk and US data will be our main caveats for the session ahead.
BUND (Sept 12) INTRADAY
Review The Bund traded sharply higher following the ECB press conference, gaining 0.95% on the day. Our yesterday’s strategy entry long at 142.64 was missed by 20 ticks.
Strategy The Bund operated as a safe haven asset in yesterday’s trade, gaining traction to the upside as market participants realised that Draghi was not about to deliver “whatever it takes” to save the single currency. As a result, the Spanish 10-year yield was trading back above 7% and the Italian 10-year yield rallied towards the 6.5% mark. We will keep an eye on peripheral bond yields in today’s session and will also monitor the newswires for potential European headline risk events. Draghi is likely to continue to face continued German and Dutch opposition to bond buying. We are therefore particularly keen to listen out for comments from German sources. Overnight, the HSBC Services PMI for China came out stronger than previous month’s release, at 53.1 vs. pre. 52.3. The official reading, however, receded from 56.7 to 55.6. Overall, a mixed picture, albeit with the services sector not declining as deeply as the manufacturing sector. For today’s session the main data release will come at 1:30PM BST in the shape of US Nonfarm Payrolls, with the headline expected at +100k. For the session ahead we prefer to position ourselves with an entry long at 144.62, targeting yesterday’s high and R1.
Alternative Scenario US data will be the main caveat for the session ahead.