S&P 500 (Mar 13) INTRADAY
Review We had a long preference for yesterday’ session looking for a continuation of the extended grind higher but we were the victims of the FOMC minutes delivering surprisingly hawkish information that triggered a ‘QE-Off’ trade. The minutes of January’s FOMC meeting released last night at 19.00GMT contained the sentence: ’Many officials were concerned about the costs and risks of further asset purchases, as the Fed buys securities at a pace of $85bln a month. This has therefore altered the previous expectation that the Fed would continue rolling out their full stimulus machine throughout 2013. Therefore, the S&P broke sharply lower breaching key supports at 1522 and 1511 and closing on the lows to post the biggest down day of 2013 at –1.37%.
Strategy Adding to the QE-Off momentum is news flow from China overnight where the new leader is looking to curb the property speculators in an effort to calm the property market appreciation rate and therefore avoid a potentially dangerous asset bubble. In the short term this is negative for Chinese GDP and hence the reason why the Shanghai Composite was down 3% overnight. French PMI data was also disappointing this morning further adding to the downside momentum for the S&P. Technically the picture is suddenly very bearish and the 1500 handle was a whisker away from being tested this morning. We have a bearish stance now and look for a breach of 1500 and look to implement a short trade on a pull back to test now resistance at 1506.50. The data calendar is packed with Initial Jobless, CPI, Phili Fed and Existing Home sales so any bad news here should add more weight to the index.
Alternative Scenario Bullish data across the board may just be enough to halt this risk-off mover and drive S&P back to test 1510.
EUR/USD (Mar 13) INTRADAY
Review The EURUSD long bias also failed due to the surprising FOMC minutes as less expected QE from the Fed is of course dollar positive. The currency pair had dipped to find support at our long entry level for a couple fo hours before the big dollar strengthening move came in as the minutes were announced. The surge lower meant a clean and easy breach of important long term supports at 1.3320 as well as the three month old upward trend line. And therefore setting up a continuation of the three week old downward trend with the move off the start of February highs now totalling over 500 pips.
Strategy This morning saw another large leg lower as the fundamental picture continues to be EURUSD negative as a result of hawkish fed minutes but also weak French PMI data. France’s Services PMI hit the lowest level since February 2009. Currently the pair has been trying to bottom out at the September high of 1.3181 with S2 doubling up in this area and we have a double bottom here for the session so far. There is a busy US data calendar this afternoon also to keep u on our toes. Fundamentally and technically the picture is suddenly looking very negative again for the EURUSD and therefore we are looking to implement a short trend continuation trade looking for resistance on a pullback to the 1.32 handle which is being tested as I type.
Alternative Scenario Bullish US data may allow a risk-on response to the sell off over the last 15 hours and this may allow the pair to drive back up towards the 1.33 handle.
US 10Y T-Note (Mar 13) INTRADAY
Review There was one thing yesterday that the markets were anticipating more than any; the FOMC minutes. The market started pricing in a slight hawkish tone from the Fed in the afternoon and risk assets sold off as a result. In line with what the markets feared, the board is getting uncomfortable pumping $85 billion in to the markets every month, and the open ended QE program suddenly came closer to its end date. As the clock hit 1800GMT we were a couple of ticks off side, though there was a spike down after that came 1 tick away from hitting our first target area.
Strategy With the threat of $85 billion dollar worth of monthly purchasing being removed from the demand side of US debt - the text book would tell you that the price of these bonds will go down. However, as traders have experienced in these QE-times, the risk on/off moves have proved to be powerful enough in the short term to move the markets in the direction risk points, rather than the theoretical direction. For this reason, risk off was priced in to the market and has been the main mover this morning. The long entry point on today's strategy assumes this risk off move to continue, and the entry is at the high of Monday, and the stop is located at the key resistance yesterday afternoon. The big risk to this is the pricing in of no more QE - which means a massive amount of demand will disappear and create a long term downside in T-Notes - so our longer term outlook is short, but in the short term we are neutral to bullish.
Alternative Scenario Conventional pricing in of US Treasuries will assume it to fall - and should this take hold of the markets we may see a move down through the low of yesterday.
Crude Oil (Apr 13) INTRADAY
Review Initially yesterday started rather quiet, with a ranging market anticipating the FOMC minutes. In the mid afternoon a sharp sell off started as the March futures contracts were expiring and unwinding of positions, especially noted by one unnamed commodity fund saw the price down 328 ticks at most from the day's high to low. The strategy was somewhat bullish yesterday, but with the unwinding combined with an FOMC that were a lot more hawkish than expected, the strategy long was stopped.
Strategy Crude has been trading lower all morning on the back of a stronger dollar and risk off sentiment, which has been the case with all other markets as well. At the close yesterday, one day late due to the public holiday on Monday, the release of inventories from the American Petroleum Institute showed a much larger than expected build on the headline number, as well as somewhat in line numbers on the components - with the exception of Cushing, which also showed a noteworthy larger build than expected. With this in mind for the 1600GMT release of the DoE numbers we are short on today's strategy, with an entry at the low from yesterday and this morning’s key resistance. Targets are the low of the day and $93 which should be obtained without too much trouble if there is a proper continuation in the moves we have seen.
Alternative Should the DoE numbers surprise we may see a move to the upside in the short term, targeting the retracement level of yesterday evening.
