S&P 500 (Mar 13) INTRADAY
Review We expected a quiet session yesterday and that is exactly what the market served up. Our neutral-long strategy was very tight in order to reflect the likely lack of price action and it was our entry level and first profit target that defined the range for the US session. 1511 was strong support as well as the pivot level and this provided resolute support following a bearish cash open before the market slowly turned and chugged higher hitting our first profit target around the European close. There was very little news flow of any note to generate much activity and the Pope’s resignation dominated the headlines, which was not a market moving event. A near perfect doji was printed on the daily chart for the session.
Strategy This morning’s price action has been influenced by currency war chat as the topic hots up going into the G20 summit at the end of the week. The central banks of Switzerland and Japan reinforced their commitment to their stimulus programmes and a G7 statement played down the situation by saying this week’s G20 summit will not single out any country as a currency manipulator. This has given the markets a slight risk on tone so far today as this topic has caused a certain amount of concern amongst the investment community in recent days. This afternoon markets will be focusing on Draghi comments due at 15.30GMT as well as a host of Fed speakers. But perhaps the main event will be Obama’s fifth state of the Union address but this will not come until well after the market close. This afternoon we look to employ a similar strategy as we did yesterday.
Alternative Scenario Bad news from Draghi may trigger a risk off move pushing the S&P back to 1500.
EUR/USD (Mar 13) INTRADAY
Review There has now been established a very nice down-trend from the first of February, and the top side of this channel was confirmed this morning as we tested R2. The recent sell offs have been on the back of Mario Draghi hinting of further easing in monetary policy as well as the current currency wars that have created the most significant headline risk. The strategy entry was obtained, and even though we came close to the first target it was not obtained, and we closed the position with a 25 tick profit at 2100GMT.
Strategy This morning there were statements from both The Swiss National Bank and the Bank of Japan, both agreeing that there is no currency war at the moment and defending the recent measures that have been taken on behalf of the central banks. The G-7 also came with a statement where they did not object to the recent efforts - all in which calmed the markets and gave a bid tone that has not been properly retraced yet. As there have been so many comments already, there will be no surprise to us if there are to be other central banks coming with statements, of those the most noteworthy will be the ECB and the Federal Reserve - and of course the PBoC - though this is less likely. The strategy is neutral long this afternoon, going against the trend with an entry at yesterday's high and first target high of the day.
Alternative Scenario Should the trend hold we may see a move down to the 1.33 handle.
US 10Y T-Note (Mar 13) INTRADAY
Review Yesterday our strategy in US Treasuries was to enter short at 131.205 which was the 50% Fibonacci level for the range for the year so far. We discussed how the market seems attracted to this key oscillation point until either more positive news can emanate from either the political or economic arena, or the bears finally get what they have been waiting for and the recent rise in euphoria is pricked. Neither happened yesterday and volumes were light in respect of the national holidays in many of Asia's major economies and as expected, T-Notes hugged tightly the 50% Fibonacci level with neither stop, or first profit tart being reached.
Strategy Today the oscillation around the 50% Fibonacci level persists and continues to develop into a more and more narrow pennant as shown below. This morning both the Bank of Switzerland and Japan have firmly committed to continued monetary easing and the G7 has approved a national desire to improve the economic standing of a central banks domes-tic economy through monetary measures. Read in this, " we all intend to take extraordinary measures to support our economies". This is no bad thing in itself, as long as a currency war is not created. For T-Notes however it reduces any international political opposition (although I am not sure how much the US would care) to continued asset purchases by the Fed. Today we do not expect any fireworks and will look to execute the same strategy as we performed yesterday all be it with a tighter first profit target to try and ensure some profits can be booked within the tight range expected.
Alternative Scenario A break of the pennant to the upside will see 131.250 followed by last week's high, 131.295.
Crude Oil (Mar 13) INTRADAY
Review There was a small downward trend in play yesterday morning as there were no positive news developments. The strategy decided to go with the trend but fell victim to headline risk when ECB's Weidmann unexpectedly stated that the Euro was not overvalued sparked bullishness across risk assets and crude traded sharply through our entry and stop handle. Due to other strategies however we were only down 10 ticks on the day.
Strategy The storms in the US and European politics is having a continued positive effect on crude, and it is currently trading up almost 150 ticks since the low from yesterday. Looking at a daily chart, the commodity have had a break from the bullishness and is currently around the high levels of the range we entered in to the 17th January. The long term trend is however still up, and we feel this is also where the risk lies. On the Gelopolitical front North Korea allegedly tested a nuclear bomb over night. Again there is no significant data today, so any movement will be sparked by news. As central banks have commented on intervention today, combined with a statement from the G-7, we believe other central banks may continue to add to this, which would be a positive for the markets. Our entry for these reasons is neutral long from yesterday's high and a stop at the high from Friday. This gives the strategy extra room, and we urge traders with low risk appetite to be careful about this as the risk reward could be better, coupled with the fact that we are not expecting any large moves.
Alternative Technical resistance may encourage some profit taking that may force a move back to the pivot.