S&P 500 (Mar 13) INTRADAY
Review The same strategy worked well again yesterday as the index continues with this theme of very mild positivity with small additions to the pervious day’s highs. The 1511 area continues to be strong technical support and yesterday afternoon this was our long entry level with the market turning higher after some weakness following the US open. It was a slow and low volume day again as the new flow was slow. The headlines were dominated with currency war comments with some confusion over a G7 statement downplaying this risk. In the end the S&P drifted up above Monday’s high and therefore set another five year high topping out at 1519.
Strategy Obama’s State of the Union address last night has done very little to influence financial markets. He was notably partisan and laid out a long wish list including a range of issues from raising the minimum wage to gun and immigration control as well as education and innovation. Ultimately thje political deadlock in Washington will mean that very few of his wishes will come true. This afternoon sees the first US economic data of any note so far this week with Retail Sales due for announcement at 13.30GMT. The economic data this year has been on the whole encouraging and we will see how the US consumer dealt with the payroll tax hike that damaged consumer sentiment last month. Other than this there is likely to be more currency war headline risk to be vigilant on. We maintain our stance of mild positivity continuing to drive this slow drift higher.
Alternative Scenario Bad data will trigger some profit taking and a break of 1511 will set up a move back towards 1500.
EUR/USD (Mar 13) INTRADAY
Review As we expected yesterday the downward trend channel was broken and is no longer in play. The last we saw of it was when we used the top side of it as support this morning before a bounce that saw us trading up at levels not seen since Thursday last week. Central banks and the G-7 commented on the currency wars yesterday, though the first comment from the G-7 was ‘misinterpreted’ as good news, and when they re-released it with explanation the market sold off. As it turned out - their latter stance on the matter is better for the economy as a whole, and we ended up back at the highs within a few hours. The strategy entry worked very well and we hit first target which worked as resistance twice during the day.
Strategy This morning the currency pair has continued their risk on move from yesterday with the euro again strengthening against other currencies - and with members of the ECB commenting that it is not overvalued this does give room for further upside. Considering other nations are embarking on historical monetary easing programs, they will be perceived as more risky compared to the euro than a year ago, in addition to the initial weakening that happens when embarking on quantitative easing. In other words, the euro can continue to strengthen relatively to other currencies for quite a while longer. As we are about to send the strategy Mario Draghi commented that the recent strength in the euro is worrying and can impact the recovery from the recent crisis. There has been a sell off leading us back below the 1.35 handle. The strategy today will however still be long, with a neutral stance, entry at the overnight high.
Alternative Scenario More comments from the ECB about overvalued euro will weaken it and we can target the 1.34 handle.
US 10Y T-Note (Mar 13) INTRADAY
Review There was a downward trend in place as yesterdays session started and as we hit the top side of it the sell off continued. There was a tough match but the entry held and we sold off to hit both targets on the strategy twice. News of note was continued comments surrounding the currency wars, which undoubtedly will be on top of the headlines in the coming weeks. We do not expect it to have an impact on the current stimulus in the US, but the risk on/risk off movement may be affected by this.
Strategy The movement has been bullish today on the back of the comments we had yesterday, as well as continued comments from the G-7 that they are less concerned over the current currency levels of the yen. We believe this is not the last we have heard of currency intervention today, and the most exposed pairs for this are those related to yen and the euro as these are currently the most impacted members of the Qlub. There is no big data of note this afternoon that will do anything but marginally help sentiment in either direction depending on the released number. Peripheral bond spreads have been tightening all day, and we are looking for this to continue. The entry on the strategy is short from 131.120.
Alternative Scenario Should we get risk off we may see the trend line being tested and possibly the high of yesterday, which has double resistance with R1.