Cable selling off on the back of BoE comments

Market Review

The session yesterday at times saw some decent moves, though the overall volatility remained low. The S&P was trending lower through the morning and afternoon after making a new all time high at the weekly open. The price of crude was slumping all through the session, attributed to crude oil supply remaining in Iraq and is actually currently near record levels. The price premium has hence forth been questioned, and compared to that we saw during the Syrian conflict, where prices rose on supply fears, but ultimately never really affected the output. The premium is likely to remain as long as there is fighting in the region, though it is important to remember that the market will start discount any risk once enough time has gone by, as we have seen in Ukraine, where the market no longer reacts massively on any movements alongside the Ukrainian border. T-notes kept its range, as was true for the Nasdaq, while the EURUSD range has been a narrowing triangle. The Crude strategy entry was obtained, though only yielded a couple of ticks.

Today's Fundamental View

This morning has seen the release of German Ifo data at 109.7 versus the expected 110.3 leading the German Dax to sell off a few ticks, but ultimately has only mirrored the EURUSD in its triangle formation, but has yet to break out to the upside. The Bund has been testing the double top from yesterday and Thursday, but has failed to break higher and have seen a very close correlation with its American counterpart. Cable has been selling off on the back of comments by Bank of England members in front of the Treasury Select Committee as they believe there is still spare capacity in the economy and this slack may serve as an indication for when the interest rate hike will come. In other words the hike is not about to happen in the immediate future, and the sterling bulls have given up some of their gains and is yet again trading below the 1.70 handle. This afternoon is set to be semi-busy for traders as there is quite a bit of data in the top two tier with consumer and housing data being released at 1400 and 1500BST, and we are neutral on the releases. Dubai’s market has been falling by the most since 2008 as the UAE Central Bank warned of a property bubble and an imminent “Ramadan effect” on local markets as the spending usually declines when family time is being prioritized as well as the warm weather leads to less effective businesses. The dramatic move has had a correlation effect in other markets, and US as well as European equities are down as well. Crude oil continues to trade at a risk premium as mentioned in the review section, and we assume this to continue. Today’s strategy will be long equities

Alternative View

Hawkish monetary comment speakers from the Eurozone may adversely affect our strategies.