S&P 500 (Sept 12) INTRADAY
Review The S&P 500 posted its second consecutive flat session at yesterday’s close following a largely uneventful and choppy day. Both of our yesterday’s profit targets were achieved, with the second profit target at 1402.25 nicely defining highs of the session. Unfortunately yesterday’s entry at 1392.50 was not reached as the market found the floor at 1393.75 (along the trendline support that has been shaping this market since the Nonfarms Friday afternoon). The index has gradually drifted lower in the overnight session, in a move which was aided by the continuation in the string of disappointing macroeconomic data from China. Both Imports and Exports were lower on an annual basis, with Imports being the more alarming piece of data, declining from 11.3% to just 1.0%. Developments on global macro front, albeit scarce this week, have on the whole continued to point to continued slowdown and heightened levels of uncertainty. For the time being, equities on both sides of the pond have remained relatively buoyant, with major indices either clinging on to some of this week’s gains or trading in the flat territory.
Strategy It has so far been a quiet morning for the S&P 500 and we expect this theme to continue throughout today’s session. In terms of economic data, US Import Price Index is due for release at 1:30PM BST, which should not amount to a strong market-moving event. For today’s session we prefer to position ourselves with a neutral entry short at the pivot, targeting this morning’s low and the double bottom support at 1390.50.
Alternative Scenario This morning newswires have been carrying a rumour about a potential RRR cut for Chinese banks. The S&P might push above the pivot if such a policy move materialises.
Review The EUR/USD spent the overnight session and the European morning in range-bound trade between yesterday’s low and the 1.23 handle without considerable trading momentum seen in the currency pair. The dollar is marginally stronger on the day against most FX majors, which has been driving a mild but broad risk-off tone this morning that encompasses currencies, equities and the commodity space. The Bund is correlating well with the EUR/USD and European equity indices this morning and is currently trading higher on the day by 0.3%.
Strategy Fundamental developments have continued to remain quiet this morning. Some of the downside for the EUR/USD and European equities has been attributed to a research report fro Bank of America, in which the bank cut its forecasts for Eurozone GDP for the second half of the year. The report noted broadly that the lack of political commitment within the Eurozone prevents the emergence of a clear strategy on dealing with the current crisis. Also, the report highlighted that continued uncertainty on the European front will contribute to diminished hiring as well as lower household spending. While this report cannot be perceived to be highlighting anything new, such developments certainly affect the sentiment in the run up to next week’s releases of Q2 GDP prints for Eurozone’s two largest economies. For today’s session we prefer to position ourselves with a more aggressive short at the 1.23 handle, while keeping our stop relatively tight. Our targets are at yesterday’s low and thereafter S1.
Alternative Scenario Dollar weakness and profit booking on shorts might compromise our strategy.
US 10Y T-Note (Sept 12) INTRADAY
Review Our strategy to be short yesterday was unfortunately not filled due to the prudence of our entry. That did no prevent good trading opportunities however as later in the session we tested the level given as 133.080, the low through the morning session, before rebounding to find resistance at the target two from our unfilled short, 133.170, the Pivot Level. The only main figure for the day was Jobless Claims which came in slightly better than expected although generated no significant market reaction as the market action remains subdued after a busy start to the week.
Strategy At the time of typing T-Notes trade above our unfilled entry short yesterday at 133.250 after a morning of strong gains in the safe haven security. It certainly feels as if there is subdued activity for further risk as equity indices try to post their tenth positive week in a row. We do not expect a great deal to happen today and as such will look for T-Notes to trade in a sideways range using yesterday’s high as a good level of support whilst remaining below the 134.000 handle. Our weighting again is neutral as price activity is likely to be uncertain due to such light levels of volumes currently observed.
Alternative Scenario Demand for T-Notes has been shown to be left wanting in recent auctions and on light volume selling pressure could encourage a test of yesterday’s key support 133.080.
Crude Oil (Sept 12) INTRADAY
Review Yesterday’s entry was unsuccessful as Crude battled a number of times to break above the 94.00USD handle to briefly print a high of 94.21 at 15:30 BST. These gains were quickly reversed as the USD started to strengthen pushing the EURUSD to new lows and generally encouraging a risk off move across financial markets. 93.14 USD, a level unidentified in yesterday’s strategy, came in twice to provide support before providing a key break lower this morning to test 92.31.
Strategy We have just heard rumours of a potential RRR cut although Crude seems unimpressed at the time of typing. Trading conditions have been tough so far today with light volume and no clear direction since 10:00 BST we advise traders limit their exposure in crude intra day volatility today. We look to enter short at the cautious entry of 92.76 with our first target at the low set this morning, 92.15. We expect volumes to remain light not withstanding an RRR cut from China and see process in Crude remaining subdued for the session as we head in to the weekend. We will of course still remain alert for any news on the Geopolitical front which may create an opportunity through the day, although a quiet uneventful session is more unlikely.
Alternative Significant geopolitical news or a cut from China could force crude above the 93.00 USD handle.