EUROSTOXX 50 (Dec 12) INTRADAY
Review The Eurostoxx firmed up at yesterday’s open ahead of October’s ZEW data but only managed to sustain a convincing break of the 2,500 handle to the upside following German comments on Spain. The ZEW data was yielded mixed results, with the Economic Sentiment recovering from –18.2 to –11.5 and also beating expectations of –14.9. Current Situation on the other hand failed to meet expectations of 11.8, coming in at 10.0 vs. prev. 12.6. Subsequent downbeat comments from ZEW economists highlighting that downside risks prevail for the German economy had little market moving effect, most likely due to the sentiment survey nature of ZEW data. We look forward to today’s macroeconomic projections from Germany and next week’s Ifo survey to ascertain the situation on the ground further. Our yesterday’s neutral entry long at 2,480 was not reached due to the lack of a pullback following a higher open.
Strategy Equities were buoyed partly by the seemingly positive developments with regard to German stance on Spanish aid and also by the decent US earnings, with the sentiment spilling over into the Asian session overnight. The session ahead is likely to be focused on US data as well as on the European commentary ahead of tomorrow’s EU summit. We also do not exclude the possibility of risk assets pulling back from their highs ahead of tomorrow’s release of Chinese Q3 GDP. For today’s session we prefer to position ourselves with a neutral entry long at 5th October high.
Alternative Scenario Disappointing US housing data as well as headline risk will be the main caveats.
EUR/USD Spot INTRADAY
Review Having consolidated Monday’s push higher overnight ahead of yesterday’s European open, the EUR/USD steadily rallied throughout yesterday’s session, breaching the 1.30 handle and attempting to break the 1.31 handle in the overnight trade. The dollar was weaker on the day as part of the broad-based risk-on move with the dollar index finishing the session with a loss of 0.15%. The single currency firmed up across the board following upbeat comments on Spain from a German CDU lawmaker. Our yesterday’s neutral entry long at 1.2946 was not reached. From the technical perspective, the EUR/USD looks interesting as the price action is within the vicinity of encountering a long-term trendline resistance which originates at the highs of last year, with key resistance coming in around 1.3150. An upside break of this area will bring the post-QE3 highs into contention and might result in a medium-term move towards 1.3500. However, the scope for an extension higher is contingent on European risk and the upcoming presidential election in the US.
Strategy With the exception of the release German macroeconomic forecasts at 11AM BST, the European calendar is light for the session ahead. The US session will bring Housing Starts and Building Permits for September at 1:30PM. For today’s session we prefer to position ourselves with a neutral entry short at 1.3150 which we expect to coincide with the long-term trendline, targeting the 5th October high and yesterday’s afternoon support.
Alternative Scenario Stronger US housing data might prompt the EUR/USD to advance further towards 1.32.
BUND (Dec 12) INTRADAY
Review The Bund gapped down at the open yesterday and proceeded to trade lower thoughout the session, finding support at the lows in the vicinity of the 38.2% Fibonacci retracement on the September-October rally. Yesterday’s downside brought the Bund to test the lows of the range that we have been tirelessly mentioning in over the course of the last three weeks and we now see the scope for yesterday’s trading momentum to pave the way to an extension lower towards the 140.00 handle, first targeting the 50% of the aforementioned Fibonacci series at 140.18. Although the Bund hit both of our profit targets in yesterday’s trade, our neutral entry short at 141.56 was missed by 10 ticks.
Strategy The catalyst behind the main downside move in the Bund in yesterday’s trade came in the shape of German CDU lawmaker’s comments, which highlighted that Germany was open to offering Spain a precautionary credit line, which is a positive development in the sense that it offers Spain a broader range of options. Yet, this once again puts the ball in Spain’s court, which may once again lead to a rocky continuation if previous reaction to offers of a bailout are something to go by. This morning we will be looking out for the results of the German Schatz auction shortly after 10:30AM BST. For the session ahead we prefer to maintain our neutral bearish stance on the Bund and aim to enter short at 5th October low, targeting S1 and S2.
Alternative Scenario Disappointing US data later on in the session might cap the downside for the Bund.