EUROSTOXX 50 (Dec 12) INTRADAY
Review Yesterday’s quiet economic calendar catalysed some profit taking in the Eurostoxx and prompted the index to finish the day with a loss of 1.13%. Our yesterday’s entry short at 2,571 was not reached.
Strategy The German ZEW data for September showed that economic sentiment improved on the monthly basis from –25.5% to -18.2%. To counteract the beat on the sentiment, the current situation data receded for the fourth consecutive month, falling from 18.2 to 12.6. Overnight, Chinese FDI data showed a less than expected contraction on the annual basis, coming in at –1.4% vs. exp. –5.8% vs. prev. –8.7%. This data along with Bank o Japan’s announcement to enhance their bond purchases by JPY 10tn provided a risk-on tone to the equity markets and the currency space, prompting the Eurostoxx to gap higher at today’s open. Although today’s European economic calendar continues to be light for the session ahead, we will be looking out for US housing data: first, Housing Starts and Building Permits are expected at 1:30PM BST, and Existing Home Sales will follow at 3PM. Having opted for short strategies for the first two days of this week and having seen limited downside momentum, we feel there is scope for looking for cautious longs for today’s session. Therefore, for the day ahead we prefer to position ourselves with a neutral entry long at the pivot with a tight stop at yesterday’s low.
Alternative Scenario Weak US data might prompt the Eurostoxx to break below yesterday’s low.
EUR/USD Spot INTRADAY
Review Having stabilised at the 1.31 handle ahead of Tuesday’s European open, the EUR/USD continued to drift lower in yesterday’s trade, with the downside fuelled partly by downbeat comments on OMT’s conditionality from ECB’s Coene. Although both of our profit targets were reached throughout yesterday’s session, our entry short at 1.3158 proved too liberal for the market conditions and was not reached.
Strategy A surprise improvement in Chinese FDI data prompted dollar weakness which in turn aided a 40 odd tick rally in the EUR/ USD. In addition, the Bank of Japan’s meeting culminated with the policymakers stepping up market intervention with the aim of weakening the yen, which certainly adds to the positive sentiment following ECB’s and FRB’s announcements of easing measures.
The session ahead is likely to be quiet in terms of European macroeconomic data, with the focus falling on US housing sector. Taking into account the strong bounce from yesterday’s lows overnight, our strategy for the day ahead aims to take advantage of a pullback trade, with a neutral entry long at the pivot, targeting R1 and a potential extension to R2 should the 50% Fibonacci retracement from Monday’s high to yesterday’s lows (also coinciding with the 1.31 handle) be breached on volume.
Alternative Scenario Headline risk will be the main caveat for the day ahead.
BUND (Dec 12) INTRADAY
Review Although we were right to have expected the Bund to trade with an upside bias in yesterday’s session, the price action turned out to be choppy on a relatively quiet day. Our yesterday’s entry long at 138.56 was not reached. The Bund gapped lower at today’s open in tandem with the overnight upside momentum in risk assets.
Strategy We are expecting today’s session to proceed in a relatively quiet manner for the Bund, taking into account the uneventful European economic calendar. Nevertheless we are keen to monitor the newswires for potential headline risk events that might derail the mild positive sentiment that we are seeing this morning. We will also be looking out for the results of the Bundesbank’s Schatz auction shortly after 10:30AM BST.
For today’s session we prefer to position ourselves with a more aggressive entry long while maintaining a degree of neutrality. Our entry for the day is at the pivot with downside targets at S2 and last Friday’s low.
Alternative Scenario Strong demand for the German 2-year paper might prompt the Bund to sustain phase of upside on correlation with the Schatz. A high-volume breach of the pivot level to the upside might compromise the integrity of our relatively tight stop at yesterday’s high.