1st July 2011
Currency overview
Focus on the Cable (GBP/USD)

Cable has been relatively choppy this week but overall has bounced a little from the double bottom made at 1.5912-13. We are currently trading above the 1.6060 level but have still failed to break back above the head and shoulder neckline.

Thoughts from the trading floor

Cable traded below the 159.40 level on both Monday and Tuesday but managed to only move lower by 20 ticks, making a double bottom at 1.5912-13 which is now key short term support. A break below here and further losses down to 1.5820 and then 1.5750 are expected. The previously broken head and shoulders neckline today comes in at 1.6140. As long as the market fails to close above here on a daily basis then technically the market still has a bearish outlook.

Despite weakness seen in the sterling currency in recent weeks the recent run up in stocks going into the end of the quarter has lead to some weakness in the dollar as risk assets have seen a sharp bid. Sterling against the Euro is still very weak and the recent bounce in Cable seems more to do with the weakness in the Dollar rather than Sterling strength. The market is still currently trading below the 1.6110 level and the aforementioned neckline. If we do continue to bounce and break above these levels then the next area of interest is 1.6260-80 with 1.6310 providing key resistance.

Cable does still seem to be suffering from a fear of more QE by the Bank Of England and still looks weak across the board. However moves today and early next week may be dictated by market sentiment elsewhere. If we see an unwind in some of the ‘window dressing’ moves we have seen in the equity markets the past few days that could lead to a weakening of risk assets including Oil, which would lift the Dollar against the major currencies. If however the moves we have seen recently are the start of a more protracted move higher in the equities then expect Cable to see some more gains in the coming sessions.

Bull View

The bulls defended the 1.5940 level well this week and will look to target 1.6140 to the upside. A close above the head and shoulders neckline is key if the market is to bounce further.

Bear View

The market has failed to break the 1.5940 level significantly so far but the bears will look for another retest in the coming sessions. A break below the daily double bottom will target 1.5820 and 1.5750.

Futex View

We are still bearish the sterling currency in the medium term but are wary of risk related trades affecting the strength of the Dollar. We will still look to sell into bounces up to 1.6110-40 but view the equity and Oil markets closely.

1st April 2011
Macro overview

Focus on the Risk markets (Equities, commodities & USD) and Non-Farm Payrolls.

Today sees the release of the monthly US employment situation report. The build up to the number over the last two weeks has seen a steady move lower in the USD and the continuation of this trend may be pivotal on the release of this report. The headline Non-Farm payrolls number is expected at 190K, with the unemployment rate expected to remain steady at 8.9%.

Thoughts from the trading floor

Wednesday’s strong ADP number bodes well for the Non Farm Payrolls today, with last month’s ADP numbers correctly guessing the NFP number.

Risk markets have turned strong despite recent volatility. The continued weakness observed in the USD against most of its major high yielding currency pairs over the last 2 weeks has seen this tight relationship with equities return somewhat and so today’s reaction to the numbers may have a ‘tell’. The USD against low yielders should reflect recent developments of hawkish central banks. A good number should see the USD rally against them and a bad number sell-off. Last month, equities had an inverse relationship to the Euro currency after the kneejerk.

Interestingly last month, equities had a decent move lower (on the back of in line on the headline and a lower unemployment rate). A great deal of expectation had been built into the numbers at the time. However, the unemployment rate number seems to be driven by participants falling out of the labour force and thus the market may ignore it once the detailed breakdown of the report is out of the way.

We have started to see an interesting new dynamic emerge for the markets over the last 2 weeks. Increasingly hawkish FOMC voting members have started to cause broad based market reactions. There has been talk that the Fed may start to outline an exit strategy at the next FOMC meeting at the end of this month and it seems that any prospect of QE3 is quickly diminishing. Therefore a very strong number may be met with selling in equities after an initial move higher, and cause a sharp break down in bonds also. The inverse is may be true if the numbers are particularly weak.

Bull View

It is likely that the current trend higher in risk and lower in the USD will dominate markets. Perversely, a slightly weaker than expected NFP number may be required for risk bulls going into next week.

Bear View

The bears will see these moves over the last week as a potential sign markets are looking to turn and the NFP number may provide this catalyst. A weak close may signal a decent sell-off next week for equities regardless of a strong or weak number.

Futex View

We favour the bears. We see the markets primed for a short-term correction having rallied into the end of March on very thin volumes. Although we may need to wait until Monday for this to occur, especially if the numbers are particularly strong.

2^nd March 2011

Commodity Overview
Focus on Oil

The Crude Oil market erupted last week under extreme volatility. The Libyan crisis and the capped oil production and distribution caused the market to spike higher. It topped at $103.41 for front month WTI under exceptionally poor liquidity conditions before retracing back below the $100 handle. 

Thoughts from the trading floor

From a technical perspective, WTI Crude Light Futures have experienced serious volatility over the past few trading sessions. The market has seen a break down in technical trading as fear gripped investors. The market spiked higher hitting £103.41 under extremely dire liquidity. The market has broadly entered a choppy trading range of $96.17 to $99.96, with a pivot point around $98.48. If captured by buyers or sellers, this could give a short-term direction to the market. Bulls will be looking to hold onto the current high prices, with resistance levels at $99.96, $101.00 and $103.41. Sellers will be looking to squeeze the market back down; a break below $94.98 could lead to snap selling back into the low $90 region. Please note that trading is expected to remain volatile. Traders should anticipate the overshooting of key levels and large momentum drives over the next week.

Last night the American Petroleum Institute reported that US oil inventories posted a gain of 519k barrels last week. This compares to the analyst estimate for the DOE number of 822K barrels. The API gasoline dropped -4898K, as similar to the estimate for the DOE number of -2798K. With not a lot of deviation between the DOE estimates and the API number, we expect the DOE release today to show a number inside of its expected range and to produce a subdued reaction.

As fighting in Libya continues, as much as 850,000 barrels a day of the country’s output has been shut down according to the International Energy Agency. Oil prices continue to rise as the unrest threatens to spread to other Middle Eastern countries. Iran, OPEC’s second largest producer, might be in danger next as protesters continued to clash with security forces in Tehran yesterday. Saudi Arabia’s Oil Chief, commented this week that the Kingdom is ‘ready to supply incremental changes in demand’ to cover any supply shortages from Libya.

Bull View

Bulls once again rode on the back of fear in the oil market to smash higher. It is all very well buyers making gains in the short term, but for a sustainable uptrend the market needs to build a strong value area foundation above the $100 mark.

Bear View

Bears were non-existent in holding back the market and rightly so with such bullish fundamental conditions. Sellers will look to creep back into the market if the Libyan crisis cools, rejecting some high prints in the market.

Futex View　

We are still bullish on the oil market. Conditions continue to be volatile which heightens both risk and opportunity. This situation is expected to remain in such a manner until the Middle Eastern tensions ease.

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