EUROSTOXX 50 (Sept 12) INTRADAY
Review The week commenced on a positive note for the Eurostoxx, with the index breaking above Friday’s high and making further gains amid limited newsflow. As we expected the sentiment still remains positive for risk assets following last week’s developments on monetary policy and data fronts. Even though the Eurostoxx reached both of our yesterday’s profit targets, our entry long at 2,333 was not hit.
Strategy The Eurostoxx broke and closed above the 61.8% Fibonacci retracement of the year’s range which potentially opens the door to a test of the 2,500 handle in the medium term. There were no fresh fundamental developments out of the EU or the US in yesterday’s session. Nevertheless, some of the optimism was provided by the rather swift resolution of the trading issue at Knight Capital Group. The main data release for the session ahead will be the preliminary reading for the Italian Q2 GDP at 10AM BST, with the headline currently expected at –0.7% vs. prev. –0.8%. In a roundabout way, a weaker GDP print could be viewed from a positive angle in the sense that such a development would pave the way for the Italian government to submit a formal request for EFSF/ESM assistance. German Factory Orders for the month of June are expected at 11AM but this data is not likely to be a strong market driver. For the session ahead we prefer to position ourselves with an entry long at yesterday’s low, targeting yesterday’s high and R2.
Alternative Scenario EU data might hamper the moderate risk-on sentiment that has persisted since Thursday.
EUR/USD Spot INTRADAY
Review Having triggered stops to test the 12th June low (1.2442) in the overnight session on Monday, the EUR/USD drifted lower and was back below the 1.24 handle at the start of yesterday’s European trade. In the end, it turned out to be a session of two halves for the currency pair, which was driven predominantly by fluctuations in the dollar. Our yesterday’s entry long at 1.2364 coincided with a choppy phase of consolidation but eventually provided support for the market to reach our first profit target.
Strategy The EUR/USD is once again trading below the 1.24 handle this morning having drifted lower throughout the Asian session. There were no notable developments overnight or in yesterday’s session to prompt a directional trade in the currency pair. For the session ahead we are looking forward to the release of Italian Q2 GDP data, which is expected to show contraction on the annual basis and stabilisation at the lows on the pervious quarter. The Italian GDP release commences the string of EU GDP data, with preliminary readings for France and Germany expected in a week’s time. With the exception of Italian data, the lull in macroeconomic data releases is going to continue throughout the week. For now, the sentiment in the markets continues to remain reasonably positive. We continue to remain on a lookout for potential headline events that might change this sentiment. For today’s session we prefer to position ourselves with an entry long at yesterday’s low which coincides with S1, targeting the pivot and yesterday’s high.
Alternative Scenario EU data, USD strength and headline risk will be the main caveats for the day ahead.
BUND (Sept 12) INTRADAY
Review Just as we highlighted the normalisation in inter-market correlation between the Bund and equity markets, the intermittent disparity was once again present in yesterday’s trade. The Bund traded higher, in tandem with risk assets throughout the European morning before the more conventional correlation returned as equities pushed higher following the US cash open. Our yesterday’s bearish view on the Bund was compromised by the persistent bid tone. Our yesterday’s entry short at 143.23 was stopped out with our stop defining the high of the day.
Strategy Spanish and Italian 10-year yields continued to trade mildly lower throughout yesterday’s session. The shorter-dated bonds rallied following Draghi’s comments at last week’s press conference.
There are no notable sovereign bond auctions scheduled for the session ahead. Nevertheless, we will look out for the EFSF EUR 1.5bn auction for 3-month bills at 11AM BST. Given the general lull in economic data, the Bund might remain range-bound in the absence of factors that would prompt it to commit to a directional trade. For the session ahead we prefer to position ourselves with an entry short at yesterday’s high, targeting Friday’s low and S2.
Alternative Scenario A strong disappointment on the Ytalian Q2 GDP data front might prompt the Bund to break above yesterday’s high and test R2.