12th August 2011
Currency overview
Focus on the Cable (GBP/USD)

Cable has broken lower over the past few sessions as the Dollar has seen a safe haven bid during the turmoil that currently engulfs the markets, breaking back below the Head and Shoulders neckline that has dominated the picture over the past few months.

Thoughts from the trading floor

Monday saw a retest of the recent highs in Cable with the contract opening around 1.6475 and then selling off hard throughout the day. Since then the market continued lower, falling through the 1.6220 area which has acted as good support over the past two weeks, and is now where the neckline comes in. We broke back below this neckline on Wednesday but have since bounced back and are trading around it this morning. This area looks like becoming an important pivot point for the market once again.

Thursday’s low at 1.6107 is now important short term support for the market, having bounced quite impressively from here. A break and close below this point would be a bearish signal and should result in further selling of Cable. For now though this looks to have put a low print in the market and a move back into the trading range of the past two weeks is the most likely scenario.

The medium term outlook is again going to be dominated by the trade in the Dollar. During the chaos that has encapsulated the markets in August the Dollar has generally seen a slight bid against some of the riskier currencies, such as the British Pound and the Euro. These trades have generally been in line with the moves in equity markets. If the equities have made a low for the time being then expect some buying to come back into Cable, with another test of the 1.6475 being the first major target.

Bull View

Although Cable has sold off while the equities have seen big moves lower, Thursday saw an impressive bounce from 1.6110. A move back into the recent range and the bulls will try and target the recent highs soon after.

Bear View

After an impressive sell off the bears have let the market bounce back up above the neckline. A close below 1.6260 would allow the bears to try and retest Thursday’s low.

Futex View

If the market can close above 1.6260 today then we expect a move back into the recent range. Though we will be keeping a close eye on the equities. Any selling there will see Cable dip as well.

29th July 2011
Currency overview
Focus on the Cable (GBP/USD)

Cable has traded in a range between 1.6260 and 1.6440 this week as traders turn their attention to the ongoing US debt ceiling issue with the August 2nd deadline just days away now.

Thoughts from the trading floor

Cable has remained relatively bullish this week, with the market making new highs for July again on Tuesday and Wednesday. The market reached the 1.6440-70 area we mentioned last week but failed to break into and above it, creating a high tick on Wednesday of 1.6440. This area will act as short term resistance for now. If we break through here there are small levels at 1.6550 and 1.6600 which we would expect to hold on the first test.

To the downside 1.6260 has proved to be good support with lows made there on three consecutive days since Friday. This also coincides with the June 22nd high. If this breaks in the coming sessions the focus will turn back to the 1.6160-80 level. This is the key pivot point for the market and a break back below here should result in a lot of longs rushing for cover. The head and shoulders neckline has been nullified somewhat after breaking back above it but after providing such good support and resistance over an extended period, might be worth keeping an eye on if we do move lower. Today the line comes in at 1.6200 so just above good support.

The big news this week has been the ongoing dispute between the two main political parties in the US about the debt ceiling. This is likely to dominate over the weekend and probably into early next week as well. There is still some doubt that an agreement will be made but in all likelihood both parties will have to make some concessions and some sort of compromise will be reached. Whatever the outcome however, it is likely to have a big effect on the markets and we could see some large, volatile moves as traders react to the news. If an agreement cannot be met and a default follows, the fast money move will likely be a weakening of the dollar. Perversely though, if equities take a real pounding the dollar is likely to still be seen as the safe haven option as risky assets are sold off. Be mindful of the news and expect to see some larger than normal moves, with technicals playing a second fiddle to the fundamentals.

Bull View

1.6260 is an important support level that will need to hold but if this is achieved expect another test of the 1.6440-70 area over next week. Beyond here 1.6550 and 1.6600 are in sight.

Bear View

The bears defended the 1.6440-70 area on the first test and have sold the market back down to near the lows of the past few sessions. A break below 1.6260 is needed before the important 1.6160-80 is tested (and keep and eye on the neckline at 1.6200).

Futex View

We still favour buying any dips down to 1.6160-80 but are mindful of the possible larger than normal moves that could occur after the any news on the debt ceiling. A break above 1.6470 and we expect to see 1.6600 soon after.

22nd July 2011
Currency overview
Focus on the Cable (GBP/USD)

Cable surged higher yesterday as risk assets across the board saw strong gains on the back of the deal announced by EU leaders for Greece, taking the market back above the head and shoulders neckline that has recently capped the gains..

Thoughts from the trading floor

The big news yesterday was the announcement by EU leaders of further aid to Greece and the already bailed out nations of Portugal and Ireland, including the ability to offer credit lines to other nations should they encounter problems in the future. This resulted in a huge appetite for risk assets, as equities rallied hard along with commodities along with the dollar selling off. As a result, Cable surged higher and finally broke back above the head and shoulders neckline that has dominated the long term picture over the past couple of months.

The neckline had previously capped gains at the end of last week and during sessions this week and the break and close above changes the medium term picture for the market. The neckline, along with the series of highs made in the past few sessions should now act as support for the market and be a key pivot point. Should this move higher fail to hold, and the market sell off back below the 1.6160-80 level quickly then it may prove to be a false break higher that flushes out the weak shorts. A move back down to 1.6000 would then be expected.

The move and close yesterday though should result in further gains over the coming sessions. The market touched the first resistance to the upside at 1.6345 this morning though has since sold off from here. In the short term, 1.6260-80 has to hold to keep the bullish stance and if this can be achieved a break through 1.6345 should see a move up to the 1.6440-70 area of resistance. Next week sees the first release of the GDP estimate for the second quarter and price action may be tempered by this going into Tuesday morning. Cable of course may swallowed up by the bigger picture again depending on how the markets see the Greece deal going forward, and how the rating’s agencies react to it. We could have increased volatility in risk assets should a ‘selective default’ be announced for example. The moves in the dollar would then take precedence over the technical outlook.

Bull View

Having broken and closed back above the head and shoulders neckline the market has a medium term bullish stance. Having already touched 1.6345 the bulls will look to retest here and break up to 1.6440-70.

Bear View

The bears failed to hold the neckline yesterday and may now need to rely on fundamental news to get the market back below here. 1.6260-80 is an important area for the bears to get the market back below if they are to test the important 1.6160-80 area.

Futex View

We saw the neckline act as resistance a couple of times this week with some good opportunities to sell and cover for a point or so but the close above now leaves a bullish medium term outlook. We would favour buying any retests around the important 1.6160-80 area. 1.6260-80 may also provide good initial support.

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.

30th June 2011
Currency overview
Focus on the Euro vs. the Swiss Franc (EUR/CHF)

The Euro vs. the Swiss Franc has staged a modest comeback over recent days and is trading just shy of the 1.2100 handle this morning. The catalyst for these moves has been the naive euphoria surrounding developments in Greece. Yesterday the Greek parliament voted to implement the next round of austerity measures.

Thoughts from the trading floor

The EUR/CHF is trading just above the 1.2050 handle, with the record low being marked around the 1.1800 handle. The recent failure from the 1.2320 level marks this as a good short term resistance. Also the 1.2400-27 level is the major resistance and short-term market pivot. If bulls are to avoid further liquidation they must look to take back this area of the market. Below here, it remains liable to big capitulations, as seen yesterday. Technically, the market looks set to continue to trade lower, with the break below 1.2400 marking the potential of this next leg lower to be aggressive and violent in its nature. Invariably this will mean that choppy price action will be seen until the market can make a clear run away from the 1.2400 handle. Immediate term resistance above the 1.2100 handle is 1.2142-50. Bears looking for the market to make successive lower highs on the weekly timeframe must look to defend this level. Thus a short position around here with a tight stop has a favourable risk/reward. If this level holds, look for the 1.1800 handle to give soon. A move through here would mean that the market has formed an outside bar on the weekly charts, which also coincides with an outside week on the German Bund. Thus a move through the 1.2150 handle and a break of this week’s lows in the bunds may signal an extended move higher for the EUR/CHF with a target of around the 1.2400 handle.

Yesterday saw the Greek parliament pass the new austerity package in order for Greece to clam its next round of aid tranche form the EU and IMF. There is talk that the EU are looking into further aid, with the most likely outcome to be fresh loans to Greece combined with some sort of decent Private sector involvement. There has been talk that the Eurozone countries will encourage the Greek debt holders to roll over maturing debt into longer term durations to help with Greece’s insolvency issues. Also Greece is being encouraged to speed up privatisation measures to raise capital.
Although, ultimately this measure will be just another case of “kicking the can down the road”, the short-term reaction for the markets is likely to be risk friendly. It seems at the moment that the EU is looking more towards the restructuring/re-profiling route and are trying to figure out a way to do so without leading to a technical default.

Bull View

The bulls will look for the market to stabilise around the current levels before the market can stage a comeback. A move back through the 1.2500 handle should stabilise the market.

Bear View

The bears will look to maintain pressure below the 1.2400 handle. The market has consistently made lower highs and lower lows on a weekly/monthly basis since 2010, and below 1.2403-89 the market remains liable to a fresh and violent leg lower over coming weeks.

Futex View

We favour the short, medium and long term bears. We feel that the Eurozone debt crises will approach the endgame scenario heading into the coming weeks.

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.

17th June 2011
Currency overview
Focus on the Cable (GBP/USD)

Cable failed to make a significant move above 1.6450-6500 earlier in the week and has subsequently sold off along with other riskier assets such as equities and oil as we have seen a general risk-off trade in the last few sessions, but is still trading above short-term support at 1.6060.

Thoughts from the trading floor

Since breaking key support at 1.6280-6310 last Friday Cable has been fairly volatile. We saw a reversal on Monday as risk-on trades took preference across all asset classes but this proved to be short lived as Tuesday and Wednesday saw the equities markets sell off again and the Dollar strengthen. This has caused Cable to sell off back down to close to May’s lows with short term support coming in at 1.6060. Below here are the series of lows created in February and March’s trading range with the key support area being 1.5930-70.

If in the coming days we can hold the 1.6060 level then expect another test back up to the 1.6280-6310 area. Price action around these levels is key as it appears to be a turning point for the market whenever it has been here. The short term momentum is definitely to the downside however. A trend line drawn from March’s low through the low made on 24 May today comes in at 1.6110. We spiked through the line yesterday but could not close below it. A close below it today and a subsequent move below 1.6060 would attract more sellers into the market and March’s lows would be the next target.

The Dollar has remained relatively strong in the face of poor data coming out of the US in recent weeks but this seems to be mainly due to the safe haven bid in recent session across all asset classes. The key test of it’s strength could come next week with the meeting of FOMC. We don’t expect anything major to come out of the meeting but there has been growing talk in recent weeks of the possibility of QE3 from the Fed and should any such measures be announced or even hinted at, then the Dollar could see some big moves.

Bull View

We are still above short term support at 1.6060 but the bulls need to get the market back above the 1.6160 level, and look to target the 1.6280-6310 area. If we move lower then the 1.5930-80 support is key if we are to remain bullish in the long term.

Bear View

The bears successfully broke through 1.6280, though it took two attempts and have made moves on the 1.6160 level. A close below the daily trendline and 1.6060 should lead to more selling pressure in the coming sessions.

Futex View

In the short term, 1.6110 down to 1.6060 must hold today else we may see a move down to the March lows next week. If we can hold the market needs to get back above 1.6160 before 1.6280 becomes the target.

10th June 2011
Currency overview
Focus on the Cable (GBP/USD)

A fairly range bound week this week in Cable between 1.6300 and 1.6470. We have traded down from the top of that range yesterday though and are sitting just around lst Friday’s low and short term support at 1.6285 this morning.

Thoughts from the trading floor

Technically the market is trading around important levels this morning and where we close today could be key going forward. A break below 1.6280 leads the way to a further move lower down to 1.6160. Although European equities closed strong on the day yesterday the US equity markets sold off going into the close, suggesting the risk-off trade of recent days has not surpassed. This would be bearish for Cable and fresh lows for the month could be tested in the coming sessions.

In the medium term resistance lies at 1.6470 and should we break here then 1.6550 will surely be tested. Above here there is still further resistance at 1.6600. We still look a little bearish on the chart however and if the main support at 1.6060 through to 1.6110 will have to hold if we are to prevent a further leg lower.

Later today we have a slew of UK data in the form of Industrial Production and PPI, as well as the BoE inflation attitudes survey. This data may give a clue as to the day’s sentiment so watch for moves soon after their release at 0915BST. The BoE yesterday kept key interest rates at their record low of 0.50%, in line with expectations as well as keeping QE at £200bn. There has been some speculation in recent weeks, from both within and outside of the BoE that this number could be increased to help the flagging economy. For the mean time though this remains an outside chance.

Bull View

We are still trading in the middle to top end of the years trading range so the long term picture remains relatively strong, but the market must remain above 1.5950 to maintain the long term bullish stance.

Bear View

If we break and close below 1.6280 today then the bears will look to test 1.6160 to the downside before trying for last month’s lows at 1.6060.

Futex View

We favour buying the cable if it gets to 1.6100-60 with stops below 1.6050 and selling any up moves towards 1.6500-50, trading the bigger range over the coming week.

26th May 2011
Currency overview
Focus on the Euro vs. the Swiss Franc (EUR/CHF)

The Euro vs. the Swiss Franc has steadily deteriorated over the last week, and has made fresh all time lows over the last 4 days. The market has yet to gain firm momentum since the break of the 1.2400 handle, however the fundamentals continue to support further weakness.

Thoughts from the trading floor

The EUR/CHF is trading below the 1.2400 handle, which has been a good short-term pivot for the market over recent months, which is below the all time low last printed in December 2010. The market had formed firm support between 1.2403 and1.2427, and the break below here confirms that the medium-long term downtrend of the currency pair has recommenced after t 5 month period of sideways consolidation. This new leg lower should be quite a violent leg lower and thus we would expect some choppy trade between the recent low around 1.2300 and near term resistance at 1.2400-89. If bulls are to make a comeback, it is upmost importance that this area is breached very soon to avoid the next deep leg of the sell-off from taking place.

We have seen over the last week a further deterioration in the European debt crises. 10yr Greek bond yields briefly pushed towards the 20% mark, and there is a growing consensus that some form of restructuring will have to take place. Credit ratings agencies have made it clear that re-profiling of the debt will be considered a credit event and the scale of the losses that may take place could dwarf the losses seen on the Lehmann Brothers bankruptcy. This is mainly down to the fact that most banks hadn’t hedged their exposure to Eurozone sovereign debt as it was considered “risk free”. Also, the potential contagion effect into the other sovereigns which are under pressure could see losses cascade. The big money...smart money... is expressing this view by buying Swiss Francs and selling Euros. They want to keep their money in Europe but not in the Euro.

Bull View

The bulls will look for the market to stabilise around the current levels before the market can stage a comeback. A move back through the 1.2500 handle should stabilise the market.

Bear View

The bears will look to maintain pressure below the 1.2400 handle. The market has consistently made lower highs and lower lows on a weekly/monthly basis since 2010, and below 1.2403-89 the market remains liable to a fresh and violent leg lower over coming weeks.

Futex View

We favour the short, medium and long term bears. We feel that the Eurozone debt crises will approach the endgame scenario heading into the coming weeks.