EURUSD closing in on magnetic 1.40 handle

Market Review

Finally some decent momentum yesterday made for a more interesting session than we had envisioned. There was no macro data of note being released out of the worlds largest economy, with the exception of oil specific DOE data in the afternoon. The session was filled with uncertainty on the back of poor Chinese data as well as an escalating Ukrainian situation. The weakening in the USD in the risk off market is likely to be attributed to the relative lack of demand for an ultimate safe haven asset under today’s economic conditions, which means that a weaker S&P, weaker US economy, will weaken the underlying currency, which is the dollar. As an extension to this, a weakening in growth in China may lead to concerns that the biggest importer of Chinese goods’ demand is slipping, and this of course is the United States. Yesterday’s strategies were overall decent, though the EURUSD was stopped. Crude oil would have made up for this and then some, though as the DOE numbers were released we traded much smaller size to reduce risk, and as the entry/target was obtained this was not enough to take back all losses. Further to this, the US announced the will at some point release 5mln barrels of strategic reserves as a test of the system. This latest news just adding to the downward pressure of the black gold, and as we were waiting for the second target our trailing stop was hit at a 38 tick profit.

Today's Fundamental View

Yesterday we expected the market to be relatively quiet [ where in fact we got decent moves], today we expect it to be everything but quiet [so will hopefully get some decent moves]. The EURUSD is closing in on the 1.40 handle, and at this point trading at its highest since October 2011. The level is now working like a magnet, and combined with option expiries around this level we believe it should be obtained within the next two days as a certainty. The data releases today is likely not to be a significant surprise as the only good data from the US has been NFP as of late we assume most releases will disappoint traders today as well. This may actually work in our favour on the EURUSD as the USD is now weakening on the back of bad US data. We are a bit split on the reaction in US10Y, but believe risks are to the upside for the ten year government bond. Crude oil should show extended downside on the back of poor Chinese Industrial Production and Fixed Asset Investment, which does not at all go hand in hand with the growth targets of 7.5% for the year which have been stated by the PBoC – almost making it a little bit awkward as they only made this punt a few weeks back. The S&P had a nice lift yesterday afternoon, and has posted a nice hammer (single candle reversal pattern) on the daily chart, though we still feel there is downside pressure on the index, and this small push up is purely giving us a chance to get in short at a better price.

Alternative View

Dovish comments from monetary policy makers or Chinese officials may adversely affect the markets.