27th July 2011
Currency overview
Focus on the Euro vs. the Swiss Franc (EUR/CHF)

The Euro vs. the Swiss Franc has seen volatile trade over the last week. The market posted fresh record lows last week, around the 1.1400 handle, and has since settled around the 1.1600 handle.

Thoughts from the trading floor

The EUR/CHF is trading just around the 1.1600 handle, with the record low being marked around the 1.1400 handle. The recent failure from the 1.2320-57 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 over the last week. 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. Bulls will need to see the current lows hold and must look to retake the 1.2357-1.2450 area. A major reversal can only occur once this area gives. Otherwise bears remain firmly in force. The cross should now be entering its most violent stage of the move lower and thus we should observe quick failures of rallies. Yesterday we saw such price action. This continues to highlight short-term weakness. Last week’s rejection of the 1.1900 handle also highlights the quickening in pace of the trend lower. Selling short-term rallies on euphoria remains the most profitable strategy for the moment.

Last week’s announcement to provide further aid for Greece and the attempt to ring fence the rest of the periphery saw the cross trade from record lows to just shy of the 1.1900 handle. However since then, concerns that these measures may not be enough to save the Eurozone from further deteriorations have seen the EUR/CHF move back down to the 1.1600 handle. The relative quick rejection of this euphoria continues to highlight the case that the Eurozone debt crises is picking up pace, which is also reflected by the quickening in pace of the downtrend in the EUR/CHF. Global uncertainty regarding the US debt ceiling has also allowed the Swiss Franc to move to fresh record highs against the USD as participants look to flee to one of the few’ gold standard’ currencies in the world. It is likely that Portugal and Ireland will next come under the radar of nervous investors and we would anticipate a move against those countries soon. The major concerns are the Italian and Spanish debt markets. Those markets have been very quick in giving up gains made last week, and further deterioration there should see the Swiss Franc accelerate even further in its advance. Ultimately the deterioration in Spain and Italy will seal the fate for the Eurozone.

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 1.2350-1.2450 area 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.

23rd June 2011
Currency overview
Focus on the Euro vs. the Swiss Franc (EUR/CHF)

The Euro vs. the Swiss Franc has remained under pressure over recent days, unable to recover with the rally in risk assets seen over the same period. This is suggesting that a quick turn-around is not imminent.

Thoughts from the trading floor

The EUR/CHF is trading around the 1.2050 handle, with the record low being marked around the 1.1950 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.

Tuesday saw the Greek PM receive a vote of confidence from the Greek parliament to continue his role. This makes it more likely that the proposed austerity measures needed for Greece to receive the whole of the next trance of aid due from the first bailout package. Currently the market expects this austerity package to also pass. However we have heard continued discontent from the Greek opposition which means that this is far from a foregone conclusion. Thus the risks remain tilted towards risk aversion, especially where the EUR/CHF is concerned. The markets have used this corss as a major protection tool and therefore it has tended to not match euphoric risk rallies in other asset classes.

Going forward, as far as the market is concerned, restructuring and re-profiling of debt will likely be a bad outcome with regards to risk appetite. Re-profiling is likely to lead to a credit default type event. However, encouragingly for the bulls, Greece may get more money in exchange for national asset sales or at least Greece having to use these assets for collateral on the loan extensions. 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.

16th June 2011
Currency overview
Focus on the Euro vs. the Swiss Franc (EUR/CHF)

The Euro vs. the Swiss Franc has continued to see deterioration over the last week, with the market making a new all-time low this morning to just below the 1.2000 handle. The major catalyst being the continued jitters regarding political tension emanating from Greece.

Thoughts from the trading floor

The EUR/CHF is trading just below the 1.2000 handle, with the record low being marked below here. The recent multiple failures around the 1.2250-12320 level mark this area 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 and this morning. 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.

We have seen over the last week a further deterioration in the European debt crises. Yesterday saw further deterioration of the Greek debt crises. Rioting on the streets of Athens combined with negative market sentiment and peripheral spreads across Europe blowing out have given us a reminder of the events leading up to the 6th May flash crash. It may be a bit farfetched to suggest that this will happen again, however the importance is that there seems to be a sharp acceleration in the deterioration of the crisis. Thus the money continues to flood into the Swiss Franc. Given that the Euro is now turning sharply lower against the USD as well, there should be a broad flood of money out of the Euro currency and thus accelerate the downtrend in the Euro/CHF. This afternoon/evening we should hear more commentary from the Greeks regarding the political future of the country. Any positive or stabilising agreement should settle markets somewhat however we are fast approaching an end-game for Greece and would back a default/restructuring event to occur soon.

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 days.

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.

9th June 2011
Currency overview
Focus on the Euro (EUR/USD)

The Euro has settled above the 1.4600 handle over recent days, trading to around the 1.4700 handle in Tuesday before easing back a little. Today we expect the ECB to hold rates at 1.25%

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 an April rate hike by announcing that “strong vigilance” was warranted on upside inflation pressures. Last month, the ECB signalled that they will “monitor very closely” the upside risk to price developments. The policy stance was described as “accommodative”.

Going back to the start of the year, the ECB announced that they would “monitor very closely” in January and February before signalling “strong vigilance” in March. The monitor very closely statements of the last 2 months imply that if this pattern is to hold, then we would expect a “strong vigilance” comment. Looking at the recent movements in the short-end of the curve, neither the risk of a strong vigilance or monitor very closely comments have been fully priced in. Therefore, we should expect a good move in either direction today.

Key words to look out for:

“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.

Announcing “monitor very closely”, with rates remaining “accommodative”- same as last month- should see brief relief rally in bonds, and small unwinding of longs in the Euro, i.e. Not as hawkish as feared.

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. This should be very hawkish.

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.

Today’s side 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.

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 signal a July hike today. The continued immediate term strength may depend on the ECB announcing further tightening going forward.

Bear View

The bears look for the ECB to signal that rates will be on hold for another month. With the April 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 bears. The market has impressively shrugged off the Eurozone issues. However the continued hope of higher interest rates has kept the Euro well bid against the USD, which should be stronger considering how weak risk markets are at the moment.

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.

5th May 2011
Currency overview
Focus on the Euro (EUR/USD)

The Euro has rallied sharply over the last week, and is now trading around the 1.4900 handle. The market traded firmly over the last month, yesterday making fresh 2011 highs as the markets anticipate the ECB policy announcement today. Today we expect the ECB to maintain rates at 1.25%.

Thoughts from the trading floor

The ECB hiked interest rates last month to 1.25% from 1.00%. Over the last 3 months the ECB had 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 returned to signalling that they will “monitor very closely” the upside risk to price developments. The policy stance was described as “accommodative”.

Going back to the start of the year, the ECB announced that they would “monitor very closely” in January and February before signalling “strong vigilance” in March. If this pattern is to hold, then we would expect another “monitor very closely” statement. The surprise would be of a “strong vigilance” comment, although looking at the recent movements in the short-end of the curve, the risk of a strong vigilance comment may have started to get priced in (30% according to some sources). Therefore, a monitor very closely comment may result in a short-lived relief rally in the short-end of the curve. A strong vigilance comment should still be very bearish for the short-end.

Key words to look out for:

“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.

Announcing “monitor very closely”, with rates remaining “accommodative”- same as last month- should see brief relief rally in bonds, and small unwinding of longs in the Euro, i.e. Not as hawkish as feared.

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.

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.

Today’s side 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.
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 signal further policy tightening in the near months. The use of “strong vigilance” should signal a June hike and therefore be the upside surprise bulls are looking for.

Bear View

The bears look for the ECB to hold off form signalling aggressive monetary policy tightening.

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.

24^th February 2011 

Currency Overview

Euro vs. the US Dollar (EUR/USD)

The Euro drove higher last week as speculation grew that the ECB might raise interest rates before the Federal Reserve. The ECB is keen to prevent inflation from rising fuel and food costs hitting EU consumers and potentially impeding further economic growth.

Thoughts from the trading floor

The EUR/USD headed off on a powerful buying movement last week, breaking key resistance at 1.3738. Bears were unable to put the brakes on the bullish advance and did not get the chance to retest the 1.3428 support. Momentum continues to build in favour of the uptrend, with a strong positive impetus looking likely to test large daily resistance at 1.3856. Sellers will hope to consolidate the market back towards the 1.3600 handle in an attempt to try and slow the market. If Sellers are able to spook the market lower, a break of 1.3495 will trigger a deeper move, giving sellers another stab at 1.3428 support. However, overall, the bullish campaign remains strong and looks set to continue into next week.

The Euro was rocked by some extremely hawkish comments from ECB’s Mersch last week; his suggestion being that ECB officials ‘may toughen their language on inflation’ which potentially indicates a readiness to hike rates.  He also suggested that the EU has ‘upside risks to price stability’.  The EU has already exceeded its 2% inflation target and will eventually have to rebalance their monetary stance.  So far, Trichet has only gone as far as saying the inflation outlook remains ‘broadly balanced’ and ‘could move to the upside’. There is potential that the ECB could raise rates before September this year.  With inflationary pressures mounting as a result of increasing energy and food prices, it will only be a slight delay before wages rise to compensate, thus making a rate hike essential. But a hike would increase the borrowing pressure on EU countries - particularly peripheral nations - and could stress an already troubled banking system which would exacerbate the sovereign debt crisis.

Bull View

Bulls remain in command of the market, driving towards the 138 handle. A key test will be the break of 1.3856, which mark the annual highs. A break here could open the floodgates towards the 1.4000 handle; a level easily achievable especially with recent ECB inflation concerns.

Bear View

Bears took the back seat last week. Hope will spring into the bearish camp if equity markets continue to weaken. A ‘risk-off’ asset move will likely see a flood of investors seeking safety in the Dollar which might give sellers the right stimulus to counter the current uptrend. 

Futex View　

We are still bullish the Euro. Our strategy continues to be to buy dips in the market. We will carefully watch out for any further comments from the ECB, which may hint at future monetary policy action.

22^nd February 2011

Bond Overview

Bonds have achieved a positive week. This is the first noteworthy gain in German 10 year Bunds since the start of the year. The global fundamental picture is still causing large concern, as political stability in the Middle East seems to be disintegrating, which is slowly filtering into the markets.

Thoughts from the Trading Floor

From a technical perspective, German Bunds have resurged out of their slump, under a fresh wave of buying. The market bounce off 122.29 lows, back to above the 123.00 handle. Buyers should be encouraged by recent progress, momentum indicators have ascended into higher ground. This should indicate further upside gains over the next few days; buyers will be targeting 124.36 and 124.53 levels. If these levels are cleared with ease the 125 handle is likely to be challenged. On a more negative tone, the medium to long-term trend is still bearish. It is unlikely that sellers will not give in without a fight. To maintain a negative bias for the next week 123.76 is an important daily swing low which buyers will have to be defended.

Portuguese bonds have seen a difficult week, with once again speculation of a EU bailout rearing its head. As well as this we have seen further indecisiveness amongst policymakers over a long term solution to the debt crisis. Wednesday’s Portuguese’s auctions did produce some interesting results as investors paid 3.99% for a 1 year auction. This catches the attention to us as trader as it is a lot less then yields paid in November and December. However this may be down to the fact that the ECB brought a large sum of Portuguese bonds early last week and investors are simply following on their coattails. This could signal a more positive note that investors are happier to gamble that a restructuring of Portuguese debt is a lot less likely to happen, with a 4% yield to good a chance to miss.

Important events this week.

• Tuesday: Consumer Confidence (US)

• Wednesday: BOE Minutes, Existing Home Sales (US)

• Thursday: Durable Goods Orders (US), New Home Sales (US)

• Friday: GDP (P) (UK)

Bull View

Bulls have finally regained their vigour and put in a significant gain over the past week. However their gains are small in comparison to the larger picture. To make a meaningful impacted in the market buyers should look to take and hold the 125.00 handle, as a building block for a larger up swing.

Bear View

Bears have slowly lost their tight grip on the market and have let a fresh buying wave commence. To stop a significant bounce sellers should cap the market below 124.36, but this may prove to be a challenge as the tide as turned against them.

Futex View

We have taken a natural stance on German Bunds, for weeks the market has slowly ground lower. We believe a considerable retracement is overdue, but we are still bearish in the medium to long term and will bide our time before selling again.

Overview

This week’s Strategy Session focused on the identification of specific price patterns in the market, how to avoid enduring big losses and the importance of having a big picture view of markets you trade.

Thoughts from the Trader

Last week, as global equity markets generally sold off, the Euro Stoxx 50 remained relatively bullish as the peripheral sovereign debt crisis stabilised. The stabilisation was as a result of the introduction this week of the European Financial Stability Facility (EFSF) Euro Bond and the expected demand from Japan and China for the new asset. Their support of the bond led to a positive expectation surrounding this week’s auction. Highlighting this strength was an atypical correlation between the Euro Stoxx 50 and both the Dax and FTSE 100. As and when selling pressure dried up in these two markets, the Euro Stoxx 50 strengthened immediately, sparking the rally we saw throughout the week.

The opposite was witnessed in the Bund market which sold-off last week, putting the Bund under further pressure going into this week. Yield spreads in the Eurozone continued to tighten aggressively and even the political unrest in Ireland failed to trigger any further widening. Credit Default Swaps (CDS) also shrugged off the news and appear to have fully priced-in the whole Eurozone crisis. With regards to the state of the Eurozone, the EUR/CHF is a key market that traders should be well aware of. This currency pair acts very much as a lead indicator and its recent rally indicates a level of stability and certainty regarding the Eurozone. Interestingly, the Bund witnessed increased volumes last week after the quiet conditions over the Christmas period.

Looking forward to this week, our Senior Traders emphasised particular strategies/patterns that all of our traders should be paying attention to. They also reiterated the importance of remaining patient in the market. They reminded the forum that being able to consistently extract 2 ticks/hour from the market would be enough to enable you to grow your account over time. The forum was also reminded of the importance of having a sound understanding of the big picture of the markets. It is a trader’s responsibility to gauge the big picture and how it changes over time in order to spot cross market correlations and lead indicators. For example, the behavior of both the Dax and FTSE 100 Index last week aided our Senior Euro Stoxx traders.  The associated strength in the EUR/CHF along with the tightening of European yield spreads were sound primary indicators of an increased desire for European risk assets and the diminishing appeal of Bunds as a safe-haven.

Further to the Bund’s weakness, both the Schatz (German 2-year Bond) and Bobl (German 5-year Bond) sold-off throughout the week on heightened fears of impending interest rate hikes. These fears triggered a flattening of the yield curve. The sustained selloff in the Bund was interspersed with strong blips as a result of aggressive buying as traders executed spread trades, selling particularly the Schatz and buying Bunds. It is imperative that Bond traders are aware of these sorts of price patterns and the accompanying logic behind them. With knowledge of such patterns, traders should exercise caution when selling into aggressive breakouts due to the recent trend of the Bund retracing strongly back into its previous ranges.

The increased volatility in the Bund market provides both opportunity and risk. As a result, ensuring stops are effective and kept relatively tight is of paramount importance. Slack stop management and a lack of discipline to take effective losers can quickly result large losses and being stopped out for the day. As a trader you must live to fight another trade and must continuously ask yourself “is the reason I entered this trade still valid?” If this is not the case, you should immediately exit your position.

In terms of fundamentals, this week we have the FOMC meeting on Tuesday evening with no action expected to be taken by the Federal Open Market Committee. As a result, this increases the chance of a significant price shift if any action were to be taken, as it will not be priced-in to the market. Sound preparation is thus vital to seizing such rare opportunities. On Friday the US GDP report will be released and the market reaction to both a strong or weak figure will be fascinating for traders. A weak figure will be linked with the high possibility of the introduction of more Quantitative Easing.  A strong figure, even though positive, could be associated with the market’s current inflation fears and increase the chance of interest rate hikes. In the UK we see the release of the Bank of England Minutes on Wednesday which will be of particular interest due to the current elevated level of inflation. The Minutes may reveal whether the Monetary Policy Committee has become more hawkish and when the expected future rate hikes can be expected.

Summary

Once more Futex traders have had their attention focused on the importance of “the big picture”. Going into this week’s trading their ability to spot those markets which are lead indicators and are going to present them with opportunities is of key importance. With the FOMC meeting, BOE minutes and the US GDP figures being announced this week, opportunities are expected to come thick and fast which means all round knowledge and thorough preparation will be essential in the quest for profitability.