8th July 2011
Currency overview
Focus on the Cable (GBP/USD)

Cable has sold off over the past few sessions after retesting the head and shoulders neckline on Monday and failing to move back above it. The low this morning is just above the 1.5936 level.

Thoughts from the trading floor

On Monday the head and shoulders neckline came in at 1.6144 and the high was made at 1.6141 with the market failing to make a move above back above it. This now leaves a bearish outlook in the medium turn with the 1.5936 level and recent daily double bottom at 1.5912 providing short term support. If these lows break then expect a move down towards 1.5750 over the following sessions. A move to here would confirm the bearish outlook on the market.

The longer term target on the head and shoulders is around 1.5350 which ties in nicely with the lows made in December. This is a much longer term play and we wouldn’t expect the market to reach this point for another few weeks at least. If this move does play out, support to will come in at 1.5640-70 and then 1.5450 before the December low levels. In the shorter term then the market remains weak and the recent lows should act as an important pivot for the market. If these hold then a bounce up to 1.6060 is expected at the least. This may also show signs of the market remaining range bound for a few sessions before finally going one way or the other. The top of this range should be the highs made this week around 1.6140 and up to the head and shoulders neckline, which is obviously edging higher each day.

The all-important NFP release is due out of the US today which could have a major bearing on all dollar paired currencies. In recent weeks we have seen some of the stronger US data result in a strong dollar - a trend that has been missing for some time so we will look to see if this continues in the wake of NFP. Expect some volatility after the release and the close will be important relative to the strength or weakness of the numbers.

Bull View

The bulls will look to defend the 1.5936 level again with a view to eventually retesting the head and shoulders neckline again. First though 1.6040-60 is an important hurdle to overcome.

Bear View

The bears sold the market back off after touching the neckline earlier in the week and the market is now back near the recent lows. A break and close below here should see a move down to 1.5750 initially.

Futex View

The head and shoulders neckline remains and important resistance to the upside, and the recent lows at 1.5936 and 1.5912 are a key pivot point. We still favour selling the bounces until we see a close above the neckline, and will look to go with momentum should we get a close below the recent lows.

7th July 2011
Currency Overview
Focus on ECB policy decision and the Euro/USD

Today sees the release of the ECB policy decision and the usual press conference. The ECB is expected to hike interest rates by 25bp. to 1.50%. This is built into the expectations.

Thoughts from the trading floor

The ECB hiked interest rates in April to 1.25% from 1.00%. Since the start of the year ECB have ramped up their hawkish stance on policy by dropping the appropriate word to describe rates. In January, they introduced the statement that the see short-term upward pressure on overall inflation, and at the same time “very close monitoring is warranted.” In March, the ECB signalled a April rate hike by announcing that “strong vigilance” was warranted on upside inflation pressures. Last month, the ECB signalled that they viewed inflation risks with “strong vigilance”. The policy stance was described as “accommodative”. If the ECB hike rates as planned today, it should confirm that the ECB are in a rate hike cycle. This is almost a given for the markets. After this, the markets need to work out how aggressive the cycle will be. The market is currently pricing in one further rate hike this year after the expected hike today

Going back to the start of the year, the ECB announced that they would “monitor very closely” upside inflation risks in January and February before signalling “strong vigilance” in March whilst dropping the word “appropriate” to describe interest rates. The monitor very closely statements of the April and May were then followed by a “strong vigilance” comment last month. Extrapolating forward this would imply a rate hike this month followed by a monitor very closely statement. This is expected by the markets. We have a similar situation to one we had last month where peripheral debt issues was the main driver of the markets heading into the ECB meeting (Bunds rallied firmly the day before the ECB meeting) and the German bonds subsequently shrugged off the strong vigilance commentary.

Key words to look out for:
“Appropriate”- (very dovish) This would suggest that potentially the ECB have decided that the current short-cycle (given they hike rates today) has come to an end and are in a wait and see mode. The one further hike expected late this year should then be unwound.

Announcing “monitor very closely”, with rates remaining “accommodative”- is expected by the markets. This would be quite event risk neutral.

Strong vigilance would indicate a hiking of rates next month. Doing so may need the ECB to use the words “(very) accommodative” to describe interest rates. Should be very hawkish as it would suggest a more aggressive cycle of hikes than currently priced in.

Interest rate corridor width:
Currently stands at 150bp. (marginal rate minus deposit rate). The pre-crises width for this corridor was 200bp. whilst the ECB’s liquidity provisions are being implemented (MROs, etc) widening the corridor to 200bp. should have a limited impact (may initially be taken as a tightening of liquidity). If this is announced alongside the easing out of the liquidity facilities, this would be seen as a further hawkish development. However, would put ECB in difficult position as many peripheral banks need the liquidity facilities to remain solvent. We also need to look out for the tender process of the MROs and LTROs. Currently they are conducted at a fixed rate. If this changes to a variable rate process, it would be a hawkish development. The ECB has continued to conduct fixed rate tenders despite hiking rates already this year as the peripheral banks are reliant on this process for liquidity.

Today’s other focus for the markets may be on the ECB measures to support peripheral banks. There has been talk of a two tier system where banks in the bailed out nations receive further liquidity provisions than the others, currently the ECB using fixed rate MRO and LTRO tenders for this process. Also the ECB will be quizzed about the recent Portuguese debt downgrade to junk by Moody’s. If another ratings agency follows and cuts Portugal to junk, this means that the ECB cannot accept Portuguese debt as collateral unless they make special provisions as they did for Greece.

With regards to the non-standard measures, described as “enhanced credit support” and the Securities Markets Programme, the ECB stated that these are “temporary in nature”.

Bull View

The Euro was under-pressure yesterday on the back of the Eurozone peripheral debt issues, and thus a surprise hawkish surprise may be required by the ECB to reverse the declines. The market may need the ECB to signal a more aggressive tightening phase for monetary policy, either through ramping up inflation rhetoric or the big surprise of another vigilance statement.

Bear View

The bears will cite the continued weakness in Eurozone peripheral debt as a sign that the market is “overvalued” and look to shrug off the expected hike by the ECB today. They may look for some sort of dovish surprise to support their case that the ECB are at least more deeply concerned about the ongoing peripheral issues.

Futex View

We favour bears, unless there is a hawkish surprise form the ECB, we favour the cross to weaken following the ECB press conference.

6th July 2011
Commodity Overview
Focus on Oil

After a quiet few days over the Independence Day weekend WTI Oil futures bounced yesterday, breaking resistance at $95.70-80 for the first time in three weeks and touching the $97.75 level in the Asian session.
Thoughts from the trading floor

Volumes have been low over the past few days owing mainly to the Independence day holiday in America on Monday. As a result, markets in general have been largely subdued and Oil was quiet after failing to break the recent highs around $95.70-80 last week. WTI Oil bounced yesterday though with traders returning to the market as commodities were bid across the board and equities remained near or through their recent highs. A break through the $95.70-80 level led to more buying and we touched the $97.75 level in overnight Asian trade before backing off this morning.
Risk markets have generally been on the back foot this morning as some covering of recent longs takes play following Moody’s downgrading of Portugal last night and as we get closer to the all important NFP release on Friday. This is likely to be as important for the Oil market as it is for equities and bonds as traders look for signs the US recovery can continue without QE from the Fed. A strong number is likely to lead to more upward pressure in Oil and levels to look for to the upside are $97.75 and $99.60.
The important pivot point for the market is now the $95.70-80 level that we broke yesterday. The market will maintain a bullish stance so long as we remain above here. A break back below however and could lead to week longs covering and further pressure to the downside. Short term support below here lies at $93.40 and around the $92.00 handle. Due to the Independence Day holiday the API and DOE releases are pushed back a day. Last week’s API showed a draw down of 2699k barrels and a draw down in Gasoline of 91k barrels. The DOE estimates for Crude and Gasoline stocks are -2500k and a build of 1000k respectively.
Bull View

The bulls have control again after breaching the $95.70-80 level and have taken the market as high as $97.80. They will need to retest here again before looking higher, possibly to $99.60.
Bear View

The bears need the market back below the pivot level at $95.70-80 to gain back momentum. Below here the first target is $93.40.
Futex View
The markets may be quiet going into Friday’s NFP release which will be important for the market. Until then look to sell up to $97.75 with a target being the retest of $95.70-80.

5th July 2011
Bond Overview

The German Bund markets have sold off sharply over the last week, making a low at 125.22 last week as the euphoria from the easing of the Greek crisis allowed risk-on trades to prevail over most asset classes. Greek 10yr yields have moved in back to the 16% mark and easing has also been observed in the other peripherals.

Thoughts from the Trading Floor

From a technical perspective, German Bunds have potentially staged a key weekly reversal. The market has recovered from firm support at 3.5%, which coincided with the 119.85-95 area. However, the market has traded back to the 3.00% mark having traded to as low as 2.82% over a week ago. The move back to the 3% mark signifies a potentially serious technical deterioration of the short-term bullish run higher that the market has had since making the April lows. The last 2 days has seen the market stabilise somewhat from the capitulation sell-off seen at the end of last week. However, below the 125.76-84 area the market remains vulnerable to further selling pressure. This is especially the case as the market has left a potential outside week reversal pattern based on last week’s actions. If bears can take the market through last week’s 125.22 prints, then we would expect further strong selling to enter the market. Bulls will need the market back above the 125.76-84 area with a strong close above here in order to stem the bearish flows for the moment. Thus the next 2-3 days will be crucial.

Thursday sees the usual ECB monetary policy announcement with the accompanying press conference. The ECB is expected to interest hikes rates by 25 b.p. on Thursday to 1.5%. In the long term this should continue to pressure the periphery especially as the major part of the reason they are struggling with their debt levels is because economic growth has really stagnated. However as we wait for this longer term scenario to play out, the major focus for the bund market will be on gauging how aggressive the rate tightening cycle the ECB is on. At the moment it would seem the ECB is on course for tightening every three months. Thus we will see what the press conference brings on Thursday. If the ECB ratchet up their inflation rhetoric at the next meeting, it may signal a more aggressive stance going forward. On the off chance we see another “strong vigilance” statement come from the ECB, it may show a very aggressive stance and catch the markets on the hop.

Bull View

Bulls will need to protect the 125.22 level if they are to prevent another week of sharp deteriorations in the market. If they are to stabilise after the recent sell-off, they will need a day close back above the 125.76-84 area.

Bear View

Bears will need to protect the 127.76-84 level. They have the upper hand, by achieving a move back through the 2.94-96% yield mark and will need to capitalise with a break of the recent low prints at 125.22.

Futex View

Above the 2.94-96% yield mark we are bearish the Bund. A further deterioration may mean that the medium-long term trend lower which started in August 2010 is resuming.

4th July 2011
Equity Overview

An extremely strong week for equity markets as Greece was once again in focus - this time with a vote on austerity measures. The S&P 500 futures broke important resistance at 1290.00-95.00 and continued to climb going into the end of the month and quarter.

Thoughts from the trading floor

The week started strongly for equity markets with many ‘front-running’ the vote by the Greek government in expectation that they would pass the vote on further drastic austerity measures. As the vote passed on Wednesday equities continued to climb with many market commentators believing there was an element of window dressing going on as we came into the end of the month and quarter. Friday saw further buying however as ISM Manufacturing data showed a strong reading - the first strong piece of US data for quite some time. All in all then the markets were up every day of the week and the S&P 500 futures posted it’s biggest weekly gain of the year. Volumes will be light on Monday as the US takes the day off to celebrate Independence Day and this could lead through most of the week as we are data-light until Non-Farm payrolls is released on Friday.

On a technical outlook the S&P 500 futures look very bullish having easily broken through all levels throughout most of last week. Next resistance to the upside comes in at 1346.00 and then 1356.50. With Friday’s NFP data being the main focal point of the week though, we may see some covering going into the numbers after the recent surge higher. Remember that before Friday’s ISM data was released June saw most manufacturing and jobs numbers missing consensus forecast and the NFP release will provide a key indicator going forward as to whether the ISM data was an anomaly or whether the US recovery is continuing, albeit at a slow pace. The previous key resistance at 1290.00-95.00 area now offers key support on the downside that may act as the markets pivot point. Before here however 1309.00-1313.00 should also attract some buyers should we dip down this week.

Important events this week.

● Monday: US Independence Day - Cash and Futures Pits closed
● Tuesday: EZ Serviced PMI’s, US factory orders
● Wednesday: DE Factory Orders
● Thursday: DE Industrial Production, BOE/ECB Interest rate Announcements, US Initial Claims, ADP Employment data, ISM Non-Manufacturing
● Friday: US NFP Jobs Report

Bull View
After a very strong week the bulls have the momentum again and will be looking for further gains with little data out before Friday’s jobs report. As long as the market remains above 1290.00-95.00 the bulls are in control but attention turns to resistance at 1346.00 - if this can be broken then the yearly highs will not be far off.

Bear View
After failing to break the lows made down at 1256.00 the bears could not stop the market from surging higher last week. They will need to defend the important 1346.00 level if we trade higher. The target for the bears must be to get the market back below 1309.00-1313.00 with a view to testing the 1290.00-95.00 area.

Futex View

Having seen such a strong buy up of equity markets it is hard to remain bearish and when the important 1290.00-95.00 was broken the bulls took control. As this week is data light the markets could continue to drift higher but there we expect to see some form of covering going into Friday’s important NFP release - this is key going forward for the market.

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.

29th June 2011
Commodity Overview
Focus on Oil

WTI Oil futures have traded lower since last Wednesday and have tested $89.60-80 to the downside three times this week but bounced yesterday as an appetite for risk markets across the board increased with expectation that the Greek government will vote to pass the austerity measures later today.
Thoughts from the trading floor

The big news since we last visited Oil was the statement made last Thursday by the IEA that they would be releasing 60 million barrels from it’s strategic reserve in a bid to combat the supply issue that have resulted from the continued conflict in Libya. This sent WTI Oil sharply lower in the time leading up to and after the announcement as the market tested $89.70 and showed a drop of over $5 on the day at one point. Putting this release of reserves into context the US uses over 20 million barrels per day. So while the move came as a shock (this is only the third time the IEA has ever released strategic reserve barrels) the total amount shouldn’t have too much of an impact in the long run. Unless however, it provokes a reaction from the OPEC countries. Iran, currently heading up OPEC, has already condemned the move and the biggest risk is that they come out and respond with a corresponding cut in production. These fundamental news events will obviously take precedent going forward over technical levels and can create larger than expected moves on a daily basis.
Currently though, the key level in the market is $94.60 to the upside and then $95.60. These two levels have held on retests numerous times since the break lower last week and still remain key resistance. A break through these and further short covering should lead to a move back towards $96.30-60 and then $97.70. To the downside $89.60 has proved key support this week but below here $87.20-60 is further support. Last night the API reported large draw down in Crude stocks of 2699k barrels, compared to the DOE estimate of a draw down of 1500k. Gasoline showed a draw down of 91k, compared with the DOE estimate of a build of 775k.
Bull View

The bulls need the market back above $96.50 if they are to really take control again and will need the $89.60 level to remain the low in the market going forward..
Bear View

After breaking lower again this week the bears remain in control. Important areas to defend are $94.60 and $95.60 with a view to retesting the lows made earlier this week.
Futex View
We are still bearish in the medium term but could see some further bounces in the short term if the risk appetite remains in the markets after the Greek vote today. We will look to sell bounces up to $96.75.

28th June 2011
Bond Overview

The German Bund markets have continued to move higher over the last week. The market is now trading above the 127.00 handle and below the key 2.96-2.94 yield area. The issues surrounding the Eurozone debt crisis and headwinds faced by global economies continue to provide a supporting bid for the market.

Thoughts from the Trading Floor

From a technical perspective, German Bunds have potentially staged a key weekly reversal. The market has recovered from firm support at 3.5%, which coincided with the 119.85-95 area, and has closed in on the 3.00% yield level. This is a crucial medium term pivot for the market. If prices can continue to remain above the 2.94-96% yield level, the market signals that it may have turned in the medium term to a firm bullish stance. The short-term perspective has definitely turned bullish and with prices above the 2.96-2.94 yield area, the market has turned medium term bullish. Although we may see some choppy volatility heading into key events this week including the Greek austerity vote tomorrow and the quarter end on Thursday. The end of the week and start of next week shall provide clear technical confirmation. First support for the market lies around today’s lows between the 1.2659-73 area. Bears will need a close below here if they are to effect a trend change. Above here bulls remain firm and should provide decent support on dips.

Tomorrow sees the important vote by the Greek parliament on further austerity measures. The event risk here is high as a failure to vote through the austerity measures effectively means that Greece should not receive the ext trance of aid form the EU and IMF. This is likely to lead to a chain of very negative consequences regarding the Eurozone debt crises. There has been talk that the Eurozone nations are preparing a potential plan B if the Greek vote does not go through, to cushion against a potential cascading of losses that may hit the European banks. Although this does in fact make it more likely that the Greeks will not accept the new round of austerity package being, or wrangle for more lenience. Risk markets rallied last week heading into the Greek PM Confidence vote and we may see something similar leading into tomorrow’s vote.

Bull View

Bulls will need to protect the 126.59-73 level if they are to build a base for further short-term bullish action. The market has now built value above here, and thus any deterioration to back below here may be significantly worrying for bulls.

Bear View

Bears will need to protect the 127.57 highs made yesterday. The market has made a significant breach of the 2.94-96 yield area and thus a move back above here will be required soon to prevent another deterioration of the medium term down-trend.

Futex View

We are short term bullish the bund and have started to change our medium term stance to bullish also. Much will depend on the outcome of where the market trades at the close this week as to whether the market can sustain the current move higher.

27th June 2011
Equity Overview

Equity markets climbed at the beginning of last week in expectation of the Greek government being given a vote of confidence but the S&P500 future could not break the 1290.00-95.00 level. Since then the markets have sold back off but have not yet broken the recent lows

Thoughts from the trading floor

The markets had a strong bounce off the lows made at 1256.00 and reached key resistance at 1290.00-95.00 which held on both Tuesday and Wednesday, topping out before Fed chairmen Ben Bernanke indicated QE3 was off the table for the foreseeable future. We have since sold off back towards the lows, touching 1257.00 on Thursday and overnight in the Asian session today. These two areas now mark key support and resistance and should either break, expect momentum to take the market further.

This week is likely to be dominated by Greece, not for the first time. Meetings start this evening by the government to debate the deeply unpopular austerity measures ahead of a vote of Wednesday. EU leaders are demanding to see approval this week to take away the threat of bankruptcy. Without it the EU and IMF say they will not disperse the fifth tranche of last years €100bn bailout and this will send shock waves through the markets, already concerned about the impact of the bailouts within the EU. This would surely leave a Greek default as an inevitability and with nobody seeming to quite know what the impacts will be, the ramifications could be huge across the financial markets.

With this in mind, technical levels may go out the window should big news hit the markets this week. Below the 1256.00-57.00 level in the S&500 future though, the 1246.50 level is also key. A break below here and expect to see further losses down towards 1234.00. To the upside 1290.00-95.00 remains key resistance and needs to break before we would be confident of seeing further gains. Above here 1302.00-06.00 is important.

Important events this week.

● Tuesday: US Consumer Confidence
● Wednesday: US Pending Home Sales
● Thursday: US Initial Claims, Chicago PMI
● Friday: US ISM Manufacturing, Michigan Sentiment

Bull View
The bulls have defended the 1256.00-57.00 on the retests but the market has not bounced a great deal since. A recapture of the 1300.00 handle is key to the market bouncing long term again.

Bear View
The bears have momentum again and attention turns to the recent lows again and whether these can be broken. If so then 1246.50 will be targeted, before 1234.00.

Futex View

We are still slightly bearish the equity markets though last week’s buy up shows you what good news out of Greece can do for bullish sentiment. This week is likely to be dominated by fundamentals and we will look to play range of last week backed by news coming from the Greek vote. A break below 1256.00-57.00 should see further selling pressure however.

24th June 2011
Currency overview
Focus on the Cable (GBP/USD)

Cable has broken lower over the past few days as talk of more QE in the UK, coupled with Bernanke seemingly ruling out QE3 in the US in the near term has weighed on the currency pair.

Thoughts from the trading floor

After holding the 1.6060 low last week the market fell just short of our 1.6280 target, topping out at 1.6260 on Wednesday. Since then we have seen a strong sell off with the Pound trading below 1.6000 for the first time since April 1 after finally making a clean break of the daily head shoulders. The market bounced of the key low made in March at 1.5940 yesterday as risk markets across the board saw a bounce going into the US close. This will be key going forward and a break below here should see further losses down to 1.5830. The low made in late January at 1.5750 is the major support level to the downside. In the longer term, the head and shoulders target is around the 1.5100 handle.

If yesterday’s low turns out to be a double bottom then upside resistance lies at 1.6060 first, before 1.6110 comes back into play. The daily head and shoulders retest today lies at 1.6125 and this will need to hold over the next few sessions if we are not to bounce back into the top half of the years trading range.

The pound has sold off over the past couple of sessions mainly due to the issue of Quantitative Easing on both sides of the Atlantic. In the UK there is quite a debate within the MPC between the doves and the hawks and the doves are currently winning. This stance was further strengthened with arch-hawk Andrew Sentance leaving the MPC recently. A poor reading from this months CBI distributive trades was further evidence of the weak recovery currently ongoing in the UK. Couple this with Fed chairmen Ben Bernanke seemingly ruling out another bout of stimulus (QE3) and the Pound has suffered against the Dollar.

Bull View

Bulls will hope yesterday’s low creates a double bottom at 1.5940 and will look to test the 1.6060 and 1.6110 levels. Getting back above the head and shoulders neckline is key if the market is to regain some upward momentum.

Bear View

A successful break of the head an shoulders neckline has lead to further selling down to the key short term 1.5940 level. Bears will look to make another test down here and a break should see further pressure come into the market, with 1.5830 and 1.5750 eyed.

Futex View

We will look to sell any bounces up to 1.6110-25 with a view to a break of yesterday’s low over the coming sessions.