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.

20^th January 2011 

Currency Overview

Euro vs. the US Dollar (EUR/USD)

The Euro staged an impressive recovery last week, stunning many market participants. The dominating rally drove prices from the low monthly print of 1.2869 to smashing the 1.3500 handle. Last week changed the profile of the market in the short to medium term towards a more bullish picture.

Thoughts from the trading floor

The EUR/USD March Future bounced aggressively off monthly lows at 1.2869. Buyers grasped control driving the market higher to break resistance at 1.3050, 1.3157, 1.3234 and 1.3428 before finally touching a temporary high at 1.3534 yesterday. Bulls are in the ascendency at present but with such volatility prices can easily swing around dramatically. Late buyers will be looking at interim support at 1.3428 to re-enter the market. On the upside, bulls should be looking at 1.3683 in the coming weeks, but for this to happen buyers will need to build a new value area above 1.3495. Sellers got hammered last week and will look to re-emerge hoping to fade the potential ‘overbought’ rally and retrace the market back below 1.3428 support. 

Hawkish short-term inflation comments during the ECB press conference last week sparked fears of a sooner than expected Eurozone interest rate hike, propelling the Euro higher. ECB members quickly tried to cool the situation by underplaying the inflation issue. ECB’s Nowotny expressed his opinion that inflation will remain below the ECB’s 2 percent target in the medium-term. Many analysts viewed the markets’ response to the hawkish comments as an overreaction to the underlying text, but the market still rallied strongly in the days after the press conference.

Last week the Dollar fell to its lowest level in almost two months. The strong decline in the Greenback has largely been attributed to signs of a lethargic US recovery and European officials continuing to be proactive on the debt crisis. Germany’s Finance Ministry yesterday squashed speculation that they were looking into ‘restructuring’ Greek debt. 

Bull View

Bulls came out of hiding last week and shocked the market with a complete upward reversal helped by Hawkish ECB comments. Bulls this week will hope to consolidate current gains and hold this higher ground, with aims at a longer term sustainable rally over the coming weeks.

Bear View

Bears have been knocked hard, with all of January’s early selling pressure being completely overturned. Sellers this week will look to fade the over-extensions of key daily resistance levels at 1.3495 and 1.3428.

Futex View　

We are still bearish in the medium to long term although the short-term trend is clearly up. We will be looking to fade any irrational overextensions of key daily resistance as we believe the market has rallied ‘too far, too fast’.

14^th January 2011

Macro-events overview

Developments in the Eurozone debt crises this week

The latter half of this week has seen euphoria enter the markets on the back of easing fears regarding the Eurozone debt crises. Peripheral debt yields have witnessed solid retracements from their recent highs and peripheral stock indices, such as the Spanish Ibex and the DJ EuroStoxx 50, have surged higher since dipping sharply lower on Monday.

Thoughts from the trading floor

There have been several macro news factors that have hit the markets this week to help stabilise the ongoing issues in the Eurozone:

1. On Monday evening the Japanese government released a statement which reassured investors that they are looking to invest in the European Financial Stability Facility (EFSF). This helped markets stabilise after sharp risk aversion trading seen on Monday morning. The previous week also saw China making several statements to this effect.
2. There has been talk emanating from the European Commission that steps are being taken to expand the EFSF, with the Core Eurozone countries being asked to increase their contributions. However, several leading German politicians have expressed concerns over this.
3. Wednesday saw Portugal successfully sell their debt to the markets, a very positive event for the peripheral markets. Spain also managed to successfully sell its debt yesterday.

These Factors have helped stabilise the markets this week. However, we are still far from reaching a logical conclusion to the debt crises. Almost certainly we will see peripheral markets under pressure again during this quarter. At that point, bulls will need to see China and Japan turn their rhetoric into action and come to the aid of the Europeans. However, such aid will likely be required to save Spain rather than Portugal as it seems as though the market has already entered an end game with regards to Portugal’s fate.

Bull View

The bulls will look for the markets to brush aside concerns over the next 2-3 months. With global support for the Eurozone likely, should the peripheral markets start to disintegrate again, bulls need a period of stability so that the politicians and governing bodies can work out a system for extra market support.

Bear View

The bears will remain wary of these measures being put in place to aid Europe. The fact that every time further support is provided to Europe more has to be done at some later stage reveals that the markets lack long-term confidence.

Futex View

We continue to favour the bears. We believe that the Eurozone crises will enter the start of the end-game at some point during the first half of this year.

13^th January 2011 

Currency Overview

Euro vs. the US Dollar (EUR/USD)

The Euro continued its slide towards the end of last week, breaking through both key supports at 130.50 and November’s lows of 1.2963. The market did snap back hard, climbing back above 1.3000 after equities continued their strong upward advance.

Thoughts from the trading floor

The EUR/USD March future printed a new monthly low at 1.2869, yet the sell-off was short-lived and the Euro aggressively bounced back through 1.3050 resistance. The game is not over for sellers and they will look to continue the downward trend in a second leg lower. Bears will look to re-break 1.3050 and from there they will be on track to challenge 1.2963. This level would be the last stand for desperate buyers and a break here would quickly drop the market towards new lows at 1.2869; a high probability outcome given the renewed downward momentum. However, given the last few strong days, the short-term bias may be edging back into bulls’ hands and buyers’ recent gains may promote a bigger short-squeeze and pop the market above resistance at 1.3157. If this scenario plays out, the technical picture could transfer back into a bullish trend.

The European fundamentals still look bleak, yet there was some relief yesterday following a key Portuguese debt auction. The Lisbon debt auction saw healthy demand for both the 3 and 10-year bonds. The average yield on the 10-year was lower, compared with a previous one in November, prompting a positive reaction in markets. However, the 3-year bonds were sold at a significantly higher yield showing there are still doubts over Portugal’s economic outlook.

Eurozone countries are working on a "comprehensive package" to answer the EU debt crisis which could be agreed by February or March, the German Finance Minister said yesterday. The plan may include a concrete bailout of Portugal - earmarked at around 60 billion Euros - and purchases of outstanding Greek debt. Many fear this is not the right answer as it involves piling new debt on top of old debt and not addressing the underlying problems.

Bull View

Bulls are still largely on the back foot and have not yet been unable to create a stable picture to build longer-term gains. Buyers will be temporary satisfied with the strong retracement from last week’s sell-off, but all the hard work is still to come. Bulls need to build a strong supportive base above 1.3157 before being able to test higher ground.

Bear View

Bears will be satisfied with the destructive sell-off through November’s lows of 1.2963. However, they should not become complacent as the move was quickly rejected. Sellers need to keep the price below 1.3050 to maintain a dominating presence in the market.

Futex View　

We still support the short/medium term bears. The market has breached the monthly lows and the trend and momentum is still pointing to lower ground. We will aggressively short any moves below the 1.3050, which is key to maintaining a negative bias.

Overview

With the ECB’s latest interest rate announcement due on Thursday together with an array of peripheral European Government bond auctions in the early part of this week, the financial market’s focus is very much back on the Eurozone. Our Weekly Strategy Session included an assessment of last week’s Non Farm Payrolls figure and how the markets responded to the surprising news. We also look to draw conclusions from the associated price action to provide us with clues as to how the markets will move upon next month’s release.

Thought from the Traders

Last Friday witnessed a Non Farm Payroll figure of 103k versus analysts’ expectation of 150k. This disappointing news was countered by positives in the shape of an improved unemployment rate of 9.4% versus a prior 9.8%, and a revision to November’s Non Farm Payroll figure taking it from 39k to 70k. The markets’ sense of disappointment came after optimism was built up during the week as a result of an extremely high ADP Employment Change figure and a further decline in Initial Jobless Claims. Bond markets saw a strong rally on the back of the figure, whereas equity markets saw an initial drive-down and a rally going into the close. The movement in equity markets was to be expected and follows a pattern which has been seen in previous months i.e. a decline in the USD leading to strength in equity markets. This is something to keep in mind at the next Non Farm Payrolls; the USD has the ability to drive the equity markets giving you an opportunity fade the original move or exploit the momentum supported by a move in the USD.

As has been typical for the financial markets in recent times, the focus has quickly shifted from the US back to Europe and Monday morning witnessed a drive higher in peripheral European sovereign yields as the Eurozone crisis came back on the agenda. Irish yields remain at 9%, Spanish yields are up to 5.5% and Portuguese yields climbed to 7.5% sparking concerns not just about the state of the peripheral European sovereign debt markets, but the durability of the Eurozone as a whole. The key concern for market participants is whether Europe has the ability to bailout Portugal and Spain if things take a turn for the worse over the coming weeks. This negative sentiment is driving both Bonds and Equities down across Europe in the run up to Thursday’s ECB rate announcement and press conference chaired by ECB President Jean Claude Trichet. Throughout the press conference traders should be aware of the key points Trichet will discuss regarding ECB bond buying, escalating inflation and the ECB liquidity REFI operations. It is essential as a trader that you have a clear and concise plan detailing how both the market and you will respond to Trichet’s comments based on previous meetings and the condition of the markets leading into the meeting.

As illustrated in last week’s Weekly Strategy Session, it is your responsibility as a trader to establish which markets are correlated to the market(s) you trade. It is also vital to establish which factors are causing your market to behave in the manner which it does. This gives you additional profit opportunities and assists with risk/reward identification. Currently, European peripheral yields are leading indicators for both bond and equity markets.  Increases in peripheral European yields, as a result of growing concerns around the state of the Euro, are frequently causing declines in both of these markets.

The main focus for the novice traders this week follows on from last week’s strategy planning. This week they will be paying close attention to important technical levels/areas and the markets behaviour (price action) as when such levels are retested.  Previous significant highs and/or lows are of particular interest and value for our traders currently. Such levels present relatively low risk/high reward trading opportunities and are ideal for both our intra-day and long-term traders.

This time of the year also heralds the earnings season which is kicked-off by Alcoa, traditionally a bellwether for the rest of the market. This release, together with other early releases, gives a sound gauge of the economy as a whole and what effect subsequent releases will have on the markets. They give traders a good indicator of the type and size of the market reaction and how to approach the figures released over the rest of the period. N.b.  JP Morgan and Intel earnings are releases later in the week and are key for the markets.

Trading Tip of the Day: When trading you must continuously be asking yourself 2 key questions:

1. 1.       What is the market trying to do?
2. 2.       How successfully is the market achieving this?

 All our best traders ask themselves these questions before, during and after every trade. This constant analysis and reflection gives traders the ability to recognize the right opportunities to enter the market, when to exit and when to remain patient; all key traits in a profitable trader.

Summary

Gauging the sentiment of the market by paying close attention to the peripheral debt auctions on Tuesday, Wednesday and Thursday, as well as peripheral sovereign bond yields is essential to build a picture of the whole market. This is vitally important to allow you to build a foundation before Thursday’s ECB rate announcement which looks sure to provide trading opportunities for those that are well prepared.

6^th  January 2011 

Currency Overview

Euro vs. the US Dollar (EUR/USD)

The Euro has seen both bullish and bearish pressure over the last week. The market drove higher touching 1.3431 before sliding off over the past couple of days. All eyes will be firmly fixed on the US Employment Report this week, with the ADP Employment number producing an unexpected out of the range higher number, shocking the market.

Thoughts from the trading floor

The EUR/USD March Future has had no success in being able to hold  any ground above the 1.34 handle. The repeated rejection of this level has led the market to take a softer tone and sellers will look to target a large potential daily trendline currently projected at 1.3094. If the bears are able to bypass this they will probe and test support at 130.50. Excess selling through 130.50 could likely trigger panic liquidation of longs and may plummet the market down below the 1.3000 handle. From a bullish perspective buyers will look to build further support between the daily range of 1.3050 and 1.3428. Buyers should look to challenge again 134.95 and will need to close and hold above this key resistance level if the medium-term down trend is to be challenged.

Europe was plagued with more bad news this week as the Swiss National Bank said it will not accept bonds from some Irish banks as collateral, further casting doubt over the Euro and underpinning its negative fundamental backdrop. Yesterday the precursor to Non Farm Payrolls, the ADP Employment figure, reported the creation of a staggering 297,000 jobs in December against the expected 93K. The number boosted the Dollar and has set higher expectations for a stronger employment number on Friday.

It was interesting to note that the Dollar rose after the ADP Employment report, which could be seen as a move away from riskier assets. This is a shift in strategy from that seen over last few months where better US data tended to reduce demand for the dollar because it made investors more relaxed and cut “safe haven” flows into the Greenback. This may be an early warning sign of risk aversion across all asset classes over the coming months and should be monitored closely.

Bull View

Bulls currently lack the ability to hold any gains above the 1.3400 handle.  Until a strong value area can be built here, or a complete break of 1.3495 is witnessed, the market direction will be against them. 

Bear View

Bears will be content with the strong dismissal of the end-of-year rally. The longer-term trend is still bearish and sellers will ultimately look to break 1.3050, a decisive point in the market.

Futex View　

We still favour the short/medium-term bears. The market again discarded another move above 1.3428 and further bearish impetus seems to be picking-up. However, NFPs will be the key economic indicator for the short-term direction.

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

The Euro traded sideways last week. A half-hearted upward probe hit 134.93 before the market fully rejected the move, leaving it to re-enter its previous trading range of 131.57 to 134.33. The Euro has still managed to hold on to most of its recent gains from the monthly low of 129.61.

Thoughts from the trading floor

The EUR/USD March future once again trades sideways within the boundaries of 134.30 and 131.57. Bulls were thwarted once more, unable to hold onto gains made last week, although they did manage to touch a high of 134.93 before the market reversed. This strong rejection once again shows the diminishing chance of a medium-term trend reversal with bears firmly in control. However, it seems a tall order for bears to be able to break the monthly lows of 129.61, as current momentum indicators have stalled in a sideways pattern. For the market to decisively break either way, prices must escape this sideways holding pattern. Confirmation of this for bears will be the break of 131.57 and for bulls a break once again of 134.33-93. With thin liquidity coming into the holiday period, either scenario is possible.

The dollar gained ground earlier this week against the euro as US 10-year Treasury yields hit seven-month highs. However, there is a conflicting opinion amongst some investors who are worried that higher bond yields will work against the dollar in the longer term and factors such as the US fiscal situation will have bearish consequences for the Greenback.

The storm clouds still hover over the Euro currency with continued peripheral debt concerns. Spain and Portugal are still under pressure both from the markets and internally from the ECB to get their finances in order and policy makers have confirmed the need for a permanent European Stability Mechanism. This week has also highlighted internal fractures between EU members, with Germany resisting the expansion of a further bailout facility which has pushed the resolution of the debt crisis further out of sight.

Bull View

Bulls are still managing to hold onto their temporary support just above the 131.50 handle. If they are able to continue to push back the bears, a retest of 135.00 should be possible.

Bear View

Bears will be pleased with the strong rejection of the 134.93 high this week. The longer-term trend is still bearish and the market has shown that there is still plenty of selling pressure in the system.

Futex View　

We still favour the short/medium-term bears. We believe the last few weeks have built-up more selling pressure for an eventual retest of 129.61.