20th May 2011
Currency overview
Focus on the Cable (GBP/USD)

The British Pound vs. the Dollar has been relatively range bound this past week with the market struggling to make a meaningful move in either direction. Up moves have been capped around 1.6300 while short term support lies at 1.6110-50.

Thoughts from the trading floor

The GBP/USD has settled into it’s current trading range after a sell off was seen after touching the 1.6750 level at the beginning of the month. As commodities and equities have weakened somewhat over the past three weeks there has been some pressure on all currencies against the Dollar as traders have turned to risk off mode. We have seen a bounce in these markets over the past few sessions however and are starting to show signs of possibly another leg higher. This would be bearish in general for the Dollar and we could see some upside in the Cable.

Currently, the market remains bearish as long as we are still trading below the top of the March/April range at 1.6350-1.6420. While we remain below here the move up at the end April and beginning of May still amounts to a false break of the recent highs. If we can get back above here then the market would eventually look to target the yearly highs of 1.6750 again so the price action around these levels will be key. Before here there is small resistance at 1.6570-1.6600. To the downside, short term support lies at 1.6110-50 with the lows of February and March providing strong support at 1.5930-80.

Data out of the UK this month has been pretty bearish for Cable throughout, apart from the CPI data we saw this week which again indicated rising costs for the average UK consumer. With CPI showing little signs of backing off, it could be a case that the Bank of England simply have to raise interest rates in the coming months. This of course would be extremely bullish for Cable, especially with the expected continuation of the ZIRP policy by the Fed in the US. As the minutes from this months BoE meeting show however, there is still reluctance within the Bank to raise interest rates as the economy still struggles to emerge with any strength from the recession.

Bull View

The bulls will look for the 1.6110 lows to form a base for another retest of levels to the upside. The first target is the top of the previous trading range at 1.6400-30. Beyond here there is small resistance at 1.6570-1.6600 before the major level at the yearly high of 1.6750.

Bear View

The bears will be content after the market sold off after making new yearly highs and as long as the market remains below 1.6430 the the outlook remains bearish. Through the lows formed this week at 1.6110 the major support lies at 1.5930-80. A break through here and we could see an extended move to the downside.

Futex View

We are still a little bearish on the dollar in the long term so expect a retest towards the highs over the next few months. In the short term however the picture is mixed and we expect the market to remain relatively range bound. We would look to play the February and March range until another meaningful move takes place.

12th 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 2 weeks. Having failed recently at repeated attempts to bounce from April’s steady sell-off, the market has started to accelerate its sell-off. The market is currently trading around the 1.2600 handle.

Thoughts from the trading floor

The EUR/CHF is trading below the 1.2700 handle, which has been a good short-term pivot for the market over recent months. The failure to take out the 1.3200 handle after forming the double bottom around 1.2400 now sees the market rapidly approaching this area again. Thus this may now signal that the 1.2403-27 area will eventually be breached. Bulls will need to retake the level represented by the 50% retracement from the 1.2427 lows to the 1.3245 highs, which is be around the 1.2836 level. Ominously for bulls, the market has also failed at the 200-day MA, which had gradually moved down to around the 1.3050 handle. Over the last 2 years it has successfully capped gains at major swing highs. Thus the medium to long term downtrend remains intact.

We have seen over the last week a further deterioration in the European debt crises. Talk of a Greek restructuring event in the near future, although denied has hurt market sentiment. It is likely that Greece will have an extension to its loans and/or be allowed to pay back the loans from the EU and IMF at lower borrowing costs. However the market has wiser to the fact that these repeated bailouts are failing and peripheral debt market confidence is falling at an alarming level. This is represented by the sharp sell-off seen in the Euro vs. both the Swiss Franc and the USD. Interestingly, the EUR/CHF has been the lead in determining overall risk appetite. Whilst the USD was weakening forcing the EUR/USD higher, this market was still edging lower. Now with investors looking to move back into USD, the sell-off in the EUR/CHF may accelerate further. Big money... informed money, is moving into Swiss Francs and out of the Euro. We now expect the market to make new all-time lows in the coming weeks.

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 1.2850 handle should stabilise the market. However, ultimately they will need to retake the 200-day MA at 1.3060 to look to turn the market in the medium/long term.

Bear View

The bears will look to take out the 1.2400 handle. The market has consistently made lower highs and lower lows on a weekly/monthly basis since 2010, and they will see this latest selling over recent days as a fresh deterioration and eventually target a break of the 1.2400 all time lows to signal the resumption of the long term bear trend.

Futex View

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

6th May 2011
Market Overview
Focus on Yesterday’s Risk-off trade

Yesterday we saw a huge liquidation of longs across the board in commodities, while the dollar strengthened and equities also saw a sell off. We have seen a continuation in some of these moves this morning and Non Farm Payroll release later will be keenly eyed.

Thoughts from the trading floor

So yesterday was a huge day across most of the major asset classes, but the biggest moves were felt in the commodity market. WTI Crude Light Oil futures dropped as much as $11 a barrel at one point; Gold had it’s biggest down day in 2011 and silver continued it’s steep decline after CME hiked margin requirements for the fourth time in eight sessions. Silver has now dropped over 30% in the last week alone. With the dollar strengthening across all major currencies the biggest move was seen against the Euro - a move from 1.4900 to around 1.4500 seen in the last two days. The moves we are seeing are some major risk-off trades and we have to wonder whether a bigger move is at play here. In context, equity markets managed to hold up relatively well in the madness. Though the S&P500 futures were in free fall at one point last night, falling 18 handles in just half an hour, they managed to recover half that move going into the close.

The NFP release later today could be key for the markets going forward. With risk trades firmly off the agenda currently, a weaker reader reading, especially if significantly weaker could see another sell off across the board. The numbers don’t look good either. Yesterday’s weekly initial claims number in the US showed the worst reading since August 2010. That figure does not fall in this months NFP release but the overall trend over the last month has been up in initial claims. Most data points over the last two weeks have been relatively poor out of the US and with some believing that QE2 will not be extended beyond the June expiry, this could be the start of a broader sell off in the markets that have seen the biggest gains since March 2009 - equities, commodities and currencies against the dollar.

Some of the closing levels could also give indication to some of the market moves. Crude Light Oil has dropped another $5 a barrel this morning, with lows posted at $94.63 currently. There will need to be an impressive bounce this afternoon if the negative sentiment is to be removed from the market. At the moment we are seeing large sell offs with little in the way of buyers anywhere. With such a steep sell off over the last week we may see some covering going into the weekend but this remains to be seen. The FTSE 100 futures has lagged the other major equity markets, owing mainly to the large number of financials and basic resources companies listed in the index - the markets most affected in the risk off trade this week. The S&P 500 and Dax futures though have remained relatively strong but the NFP release later will dominate the moves in these markets. Closing levels in relation to the strength or weakness of the number could be a key indicator for momentum going forward.

● Non Farm Payroll released at 13:30 BST
● Expected at 185k, Private Payrolls at 200k

Bull View
In Oil, the bulls will have to keep the June contract above $92.00 a barrel and look to build again from there. If the S&P 500 future can leave its low print of 1325.25 from yesterday in place, the bulls will look to take the market back towards the 1347.00-50.00 levels.

Bear View
The bears have well and truly taken control over the last two days, in commodities especially. A key for the Oil market would be a close below the $100.00 level but anything below $102.00 and they will remain in control. If we see a poor reading out of the NFP release later, we could see further big sell offs in equities and commodities. If they can take the S&P 500 future through yesterday’s lows with a meaningful break then 1298.00-1300.00 will be eyed next.

Futex View

We have been bullish Oil and equities for a long time now and saw significant new highs made at the beginning of last week. Since then though we have seen some major sell offs and we will look to see how this afternoon plays out after the NFP release. As mentioned before, the closing levels in some of the markets in relation to the NFP number could give us an indication of future moves.

15th April 2011
Currency overview
Focus on the Cable (GBP/USD)

The British Pound vs. the Dollar has traded close to it’s recent highs over the past week, consolidating it’s move up since the beginning of the month.New highs were made on Thursday at 1.6430 and after an initial sell off from here we have seen another bounce from around 1.6220 on the back of continued Dollar weakness.

Thoughts from the trading floor

The GBP/USD is currently trading around 1.6350. Since the beginning of February Cable has traded in the 1.5950-1.6400 range with a strong bounce off 1.5980 at the beginning of the month resulting in the market making new highs for the year at 1.6430 just last week. The medium to long term outlook continues to be bullish for the GBP/USD. If the market can make a significant break through the recent highs then 1.6700-50 will be targeted by the bulls. If these levels can be taken out then a stronger recovery up to 2009 highs of 1.7050 is certainly not out of the equation.

The bears will look to defend the current highs around 1.6400-30 as they have done over the past three weeks and take the market back down to the low of the range to 1.5950-1.6000. The market has failed to break lower from this area despite testing there on nine separate days since the middle of February. If the bears can take the market here again and make a significant break lower, then 1.5750 will be the initial target, with further support at the December lows at 1.5350.

UK CPI data released on Monday showed a lower than expected reading (4.0% vs. 4.4%) which initially caused a sell off in Cable. It has since recovered though suggesting bullish sentiment in the market. With the ECB hiking interest rates for the first time in over two years last week and with UK inflation still at elevated levels despite Monday’s reading, many market participants are looking for the Bank of England to soon follow suit. This should provide some strength to the British Pound across the board. The Dollar has continued its slump since mid February and has a bearish look overall, and with the Fed unlikely to raise rates anytime soon may see some further declines against some of the other major currencies.

Bull View

The bulls will look to keep the market above the lows of the last three months around the 1.5950-1.6000 levels and take the market through recent highs of 1.6430. If breached the medium term target is 1.6750.

Bear View

The bears will look to defend the market at the current recent highs. Another failure here and they will want the market back down to the low of the range. If they can take out the 1.6000 handle with some momentum, 1.5750 is the initial target.

Futex View

We favour the medium and long term bulls. Though the market is currently range bound we expect an eventual break of the recent highs with a view to the market trending higher. With the Dollar looking weak across the board, a move to the 167.50 level is the most likely scenario, and possibly 1.7050 over the longer term.

7th April 2011
Currency overview
Focus on the Euro (EUR/USD)

The Euro has rallied sharply over the last week, and is now trading around the 1.4300 handle. The market traded firmly above here yesterday making fresh 2011 highs as the markets anticipate the ECB policy announcement today. Today we expect the ECB to hike rates by 25bp to 1.25%.

Thoughts from the trading floor

Rates were described as “appropriate” at the January and February meetings. Last month the ECB ramped up their hawkish stance on policy by dropping the appropriate word. 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.” Last month, the ECB signalled a potential rate hike this month by announcing that “strong vigilance” was warranted on upside inflation pressures. Thus markets have priced in a 25bp. hike. Going back to the previous rate hike in July 2008, the ECB used the term “heightened alertness” as opposed to strong vigilance before hiking rates in July. Going back to the start if the previous rate-hike cycle in 2005, the ECB had used the term “vigilance” for most of the year before announcing strong vigilance in November followed by a subsequent hike in December.

Key words to look out for:
1. “Appropriate”- This would suggest that potentially the ECB have had a one off hike and are on a wait and see stance again. The ECB may then put the monitor closely line back in as per their stance in January. This would be a dovish development.
2. Omitting “appropriate” and announcing monitor very closely, vigilance or strong vigilance would indicate the start of a rate hike cycle. Doing so may need the ECB to use the words “ (very) accommodative” to describe interest rates. This would pave the way for a further clarification to how the ECB see the current policy. This would be very hawkish.
3. The use of heightened alertness as opposed to vigilance. Although this terminology seems to have been scrapped.

Today’s side focus for the markets may be on the ECB measures to support peripheral banks. We have heard over recent days that Portuguese banks have been struggling to raise money form wholesale markets, and the precarious sovereign position has left the Portuguese asking for a bailout from the EU last night.

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 bulls will look for the ECB to hike rates today, as expected. Although the continued immediate term strength may depend on the ECB announcing further tightening going forward.

Bear View

The bears look for the ECB to hike rates but signal the hike as a one-off and return to a wait and see stance. With the Euro pricing in a potential series of hikes going forward, it will be left vulnerable especially considering the fresh developments in the Eurozone debt crises overnight..

Futex View

We favour the bulls. The market has impressively shrugged off the Eurozone issues. A slightly less hawkish than expected press conference may cause a short-term sharp pull-back however we expect the market to base and then rise again going into next week.

31st March 2011
Currency overview
Focus on the Euro vs. the Swiss Franc (EUR/CHF)

The Euro vs. the Swiss Franc has continued its recovery over the last week.. The market hit highs around the 1.3050 handle yesterday and has since held around these higher levels. The strength of the market has broadly coincided with both strength in the Euro currency as a whole and broad based Swiss Franc weakness.

Thoughts from the trading floor

The EUR/CHF is trading around the 1.3000 handle. Over the two weeks, the market has sold down to the 1.2400 handle and recovered since. The move higher since then marks the 1.2400-1.2427 level as a key bottom. If the 1.3043 level is taken, bulls will aim for a move through the 1.3207 level. The medium to long term outlook will rest on the market’s reaction around this level. If this is breached, an extended recovery to the 1.3836-1.3926 area will be on the cards. Bears will need to defend the 1.3043-1.3207 area. Another failure to recover through here would mean that the market remains short term range-bound with a medium term bearish bias. Thus may signal that the 1.2403-27 area will eventually be breached.

We have seen over the last week a further deterioration in the European debt crises. This week we have seen further downgrades of Portuguese and Greek sovereign debt, and the Portuguese 10yr debt is trading above the 8% yield mark. This has seen Portuguese debt against German Bunds trading at Euro lifetime highs. So far the market has been able to ignore these developments, which is a sign of strong positive momentum. Today sees the Irish Bank Stress Test results. It is known that these Irish banks have a capital short-fall of around EUR 25Bln, which will need to be met by the Government which will effectively have to nationalise the entire bankrupt banking sector. This should lead to further pessimism over the Irish Sovereign debt as it is likely, in our view, the failures of the banking sector will lead to the government needing to ask for debt forgiveness (haircuts on govt. debt) in the coming months. The ECB will need to step in at some point with a short-term funding mechanism, known as the Exceptional Liquidity Assistance (ELA) which will provide the banks with EUR 60Bln in liquidity assistance. This is effectively prolonging the eventual inevitability of a debt restructuring event.

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 1.3043 level should target the 1.3200 handle.

Bear View

The bears will look to take out the 1.2700 handle. The market has consistently made lower highs and lower lows on a weekly/monthly basis since 2010, and they will see this latest selling over recent days as a fresh deterioration and eventually target a break of the 1.2400 all time lows.

Futex View

We favour the medium and long term bears. We feel that the Eurozone debt crises will approach and endgame scenario heading into this year and will look to sell into these short-term rebounds, trading with the trend of the last 12 months.

24^th March 2011 

Currency Overview

Euro vs. the US Dollar (EUR/USD)

The Euro broke the 1.4000 handle with conviction last week, pushing higher before running out of steam at 1.4228. The Euro/USD currency has been relatively quiet over the last week, despite ongoing global turmoil. However, last night saw the Portuguese PM resign following a resounding defeat after the country rejected new austerity measures, leading to a heavy offer going into the Euro.

Thoughts from the trading floor

The EUR/USD bulls capitalised on their steady upward pressure overcoming resistance at 1.4000. Bulls restored some upside confidence and the market pressed higher forming a temporary high at 1.4228. The bullish uptick tipped momentum indicators back into their favour and the market bias still continues to be to the upside. It is worth noting that the last two trading days have seen a more negative tone in the market. While it may not worry longer-term bulls, the recent retracement could be an early warning sign of buyers struggling to hold the higher ground. The much talked about 1.4000 will be a pivotal fighting ground. If prices slip below here, sellers will be sure to re-emerge in force. Such a move could lead prices to sell-off into 1.3872/1.3837 daily support, putting the brakes on the recent rally. 

Portugal’s PM Socrates submitted his resignation as President last night. He was defeated over the austerity measures which will now push the country towards early elections and a potential international financial bailout. The PM said ‘the crisis comes at the worst time ahead of the EU summit’. He will continue in government in a ‘caretaker’ role before a successor is voted-in. This will shatter any confidence the market has in Portugal and a bailout seems inevitable. The Portuguese ten-year bond spread is already widening to 416bps over the German benchmark. There are already rumours of an 80bln Euro bailout on the street. 

Bull View

Bulls succeeded in breaching the defiant 1.400 level. Buyers initially capitalised on the break pushing the market higher hitting a print of 1.4228. The trend is still firmly up on all time frames and momentum is with the buyers. Bulls should not get complacent though, as a break back below 1.4000 could turn the tide against them.

Bear View

Bears will be keenly watching any contagion fears in the EU, especially after Moody’s yesterday downgraded Spanish banks. Sellers will take comfort in the bearish price action in the last few days and will look to slide the market back down through 1.4000 triggering a classic ‘bull trap.’

Futex View　

We are still bullish the Euro. However, we will keep a close eye on the Portuguese situation as it is possible that the EU debt crisis could rear up again and snap the recent bullish Euro trend.

17th February 2011
Currency Overview
Euro vs. the US Dollar (EUR/USD)

The Euro slowly edged lower last week, as interest for the Dollar firmed-up as European peripheral yields rose under renewed debt pressure. The Euro has remained positive over the last few trading sessions as investors continue their ‘risk-on’ trading strategy, with major equity markets breaking annual highs.

Thoughts from the trading floor

The EUR/USD tested downside support at 134.28 and was safely rejected; buying pressure resurged lifting the market back above the 135.50 handle. Buyers will be spurred by this recent bid and should be gearing up for further gains. Buyers should aim to penetrate the 136.00 handle and look to draw the market towards 137.25. If 137.50 can be achieved, control will be back in their hands and the market could test February’s high of 138.56. Sellers have made their presence felt over the last week and have ground the market steadily lower. The key level will be 134.28 which will be pivotal over the next few trading days. A move below this could open the door to a fresh flow of selling and could lead the way to a probe of 132.34.

Federal Reserve minutes were released last night. The general consensus from the FOMC was that the US economy ‘was better but not good’, especially the jobs market. The Fed projects that the jobless rate will average 8.8%-9% in the fourth quarter of 2011, which is lower then the previous expectation of 8.9% to 9.1%. In terms of changes to QE, ‘additional data pointing to a sufficiently strong recovery’ is necessary if they are even to consider a change in the bond-buying plan. Federal Reserve officials did disagree as to whether more signs of strength in the US recovery would warrant a change in the QE2 program. Many speculate any changes would be slight and would not change the overall effect of the full QE2 program.

Bull View
Bulls remain resilient and strongly discarded a move to try and break the 134.28 daily support level. After the rejection, buyers surged back into the market. Time will tell if this bounce can turn into a meaningful rally; buyers will look to regain the 137 handle to confirm this.

Bear View
Bears forced the market lower and initially probed 134.28 before finding a strong buying presence. A snap below 134.28 will signal a change in momentum for the market and could gesture at a larger downtrend.

Futex View　
We are still bullish the Euro. Our strategy continues to be to buy dips in the market. Global asset classes are still pointing to further ‘risk-on’ sentiment, weakening the appeal of a Dollar safe haven.

27^th January 2011 

Currency Overview

Euro vs. the US Dollar (EUR/USD)

The Euro pushed higher last week building on previous gains, which produced eleven positive days in a row. The Euro tipped through strong daily resistance yesterday topping 1.3714. Many market participants have regained confidence in the Euro after European peripheral equity markets surged higher following renewed assurances that the debt crisis maybe easing. 

Thoughts from the trading floor

The EUR/USD March Future ticked higher again last week breaking through the 1.3600 handle. The market probed through the 1.3683 level which marks the start of a strong resistance zone through to 1.3767. This area is likely to be heavily defended by sellers. From the chart view, the powerful recent rally has changed the short-term market direction towards a bullish stance. Bulls may be facing a slight retracement over the coming days as momentum indicators point to a more ‘overbought’ market; support will lie at 1.3495 and 1.3428. These levels will need to be held if the market trend in the medium-term is to turn into a longer upward wave. Even though the bulk of the technical analysis points to higher ground, a move below 1.3428 could lead to panic profit taking and a reintroduction of fresh selling pressure.

The debut EFSF bond issuance drew extremely strong interest from investors this week, being heavily oversubscribed. Such a positive reaction to the issuance boosted confidence in the Euro currency and improved optimism that the Euro will survive and the crisis will be solved. With healthy debt auctions from Portugal, Spain and Italy also this month, many market participants believe the new anti-crisis action has halted contagion fears. This can be clearly seen in both Spanish and other peripheral nations’ financial stocks which massively outperformed other European shares. Spanish stocks have risen over 15 percent over the past weeks, giving strong evidence that contagion fears are diminishing.

Bull View

Bulls have continued to gather in force and push the market higher. To continue to dominate the market in the short-term, buyers should look to build a strong foundation area above 1.3495. If a value area can be built and held, there is no reason why bulls should not be pushing through the 1.3800 handle. 

Bear View

Bears have been futile in their efforts to hold back the bullish tide. The market has hit some long-term daily resistance at 1.3683 and 1.3767. Sellers will look to stem the bullish flow at these levels and squeeze out some weak longs.

Futex View　

We have changed ‘tack’ on our Euro view and are bullish due to positive progress being made by the ECB to solve the debt crisis. However, the market does feel over-extended so in the short-term we will look to buy the deeper retracement dips.

21^st January 2011

Currency overview

Focus on the Euro vs. the Swiss Franc (EUR/CHF)

For much of the last year, the Euro vs. the Swiss Franc has been a barometer of sentiment regarding the markets’ perception of the Eurozone debt crises. Over the last week the market has broken sharply higher as peripheral debt yields have tightened and peripheral stock indices have entered a state of ‘melt up’.

Thoughts from the trading floor

The EUR/CHF is trading around the 1.3000 handle. Over the last week the market has broken through major resistance, now support, at 1.2729-65. Next resistance lies around 1.3119, which is the 50% retracement of the last leg lower from the November highs at 1.3836 to the recent all time lows at 1.2400. Bulls will need to see the market through here in order to ensure that the recent positive momentum is built upon. It is important that the market holds the near term support around 1.2723-65 in order to prevent another capitulation.

The strength of the pair has been built on recent positive momentum from the easing of European debt fears. This has seen Portuguese 10yr rates tighten to 6.5%, Ireland to 8.5% and Spain back to the 5% mark. The stabilisation of the debt concerns took place at the start of last week with a raft of pledges from around the world for the EFSF. This has led to a very strong rebound in peripheral stock indices, which have not followed global counterparts lower over the last 2 days. Accompanying this move has been material strength in the Euro currency against most of its major pairs, even against the USD which has also strengthened in the last 2 days. With the upcoming Eurozone Finance Ministers meeting on the 4^th February, we may see continued Euro strength in the lead up as there is a sense of optimism that the governments will act further to strengthen the EFSF.

Bull View

The bulls will look for the market to stabilise around the current levels before the market can stage a firmer bounce. A move back through the 1.3119 level should target the 1.3800 handle. However, much will depend on the EU Finance Ministers meeting on the 4^th February.

Bear View

The bears will look to defend the 1.3119 level. The market has consistently made lower highs and lower lows on a weekly/monthly basis since 2010, and they will see this latest rebound as a selling opportunity.

Futex View

We favour the medium-long term bears. We feel that the Eurozone debt crises will approach an endgame scenario at the beginning of this year. We will look to sell into short-term rebounds, trading with the trend of the last 12 months.