30th August 2011
Bond Overview

The German Bund markets have seen choppy trade over the last week. The market has eased somewhat from the recent high prints as risk markets have looked to recover over this period. However, Eurozone issues remain supportive of the market on dips lower which has manifested itself over the last 2 sessions.

Thoughts from the Trading Floor

From a technical perspective, German Bunds have potentially staged a key weekly reversal. The market has recovered from firm support at 3.5%, which coincided with the 119.85-95 area. The market is trading around the 2.16% yield mark, having made a high in price around at the 2.03% yield mark last week. The market has seen somewhat of a pullback from here, although remains well supported above the 134.46-54 area, which is just below the 2.2% yield mark. As long as the market remains firmly below 2.2% yields, the market looks well set to target the all time lows in yields around the 2.03% mark and the significant 2.00% yield level. Bears will need to target a break of the 133.79-88 level if they are to make any headway. A close above the 2.5% yield level may then signal a further sharp deterioration in prices for those looking for a medium to long term swing in trend.

The end of last week saw euphoria into the risk markets as participants anticipate Bernanke’s remarks of holding an extended FOMC meeting in September as a sign that he may signal a fresh round of policy easing. As a result equity markets have recovered sharply from the deterioration witnessed heading into the Jackson Hole speech. As a result, Bunds continued to ease form recent high prints, with the market testing down to the 134.18 level yesterday. This morning, the spotlight has fallen back on to the Eurozone debt issues which has seen Bunds break sharply higher, recovering a big chunk of the last 2 days of losses. Should this bid activity continue, the market targets the highs made on Friday, around the 135.84 level, although a trend line for the daily bull flag lies around the 135.70 mark. A move through these levels will again target the 2.00-2.03% yield mark. With continued disturbances in the Eurozone, including a potential backing out of some of the harsher austerity measures by Italy and the scramble to secure collateral form Greece, the Bund should remain supported on dips.

Bull View

Bulls will need to protect the 133.79-88 level if they are to maintain upside momentum. A day close today above the 134.77 level will also ensure that bulls remain strong.

Bear View

Bears will need to protect the 136.18-26 and 2.00% yield levels. If this is achieved they need a move back below the 133.79 level in coming days in order to capitalise.

Futex View

We remain bullish the bond. We would back the Eurozone crisis to quicken in pace going forward as we fast approach the end game this year.

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

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

Thoughts from the trading floor

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

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

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

Bull View

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

Bear View

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

Futex View

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

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

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

Thoughts from the trading floor

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

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

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

Bull View

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

Bear View

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

Futex View

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

28th July 2011
Commodity Overview
Focus on Oil

WTI Oil futures have traded around the highs of the July trading range over the past few sessions and we have broken the $100.00 mark on a few occasions though have failed to close above here as yet.
Thoughts from the trading floor

On Wednesday the API figures showed a large build in Oil inventories at 3960k and a small draw down in Gasoline stocks of 639k barrels. The DOE figures both showed relatively large builds last night at 2296k for the Oil and 1022k for the Gasoline. The market moved down on these figures initially but then recovered later in the session. We are now trading around the same area after the initial sell off yesterday.
The Oil market has been relatively quiet over the past few sessions though we have remained near the highs of the July trading range. Having broken the $100.00 mark on both Thursday and Friday, and again on Tuesday we would have expected some follow through to the upside but this has not materialised. The market has failed to close above here with sellers coming in on each occasion. Tuesday’s high of $100.62 is now short term resistance before the bigger level at $101.25. The market has since sold off since Tuesday and is currently trading around the small level at $97.75. To the downside, the key areas will be $95.70-90. If the market can hold and remain above these levels then expect to see another test of the recent high. A break below here however and we should see some longs start to cover, though there is support seen at $94.40-60 as well as the July double bottom at $93.50.
It seems strange to us that the markets in general appear not to be too worried about the potential of the US defaulting on it’s debt and being downgraded by the major rating’s agencies. In our view the markets seem to assume something will be done and while we expect some sort of agreement to be made over the coming days, it doesn’t seem that the parties are going to negotiate a deal that solves the problem in the long term. If any deal falls short of market expectations, or more shockingly, no deal is made at all, then expect risk markets to really take a hit. Any big news on this front will likely lead to some larger than usual moves and the technicals will become less prominent.

Bull View

The bulls made a break higher last week but have failed to capitalise on those gains. They will target another break of the $100.00 level and look to close above here, targeting $100.60 first and then $101.25.
Bear View

The bears defended the $100.00 level, preventing a close on each occasion that it broke and have since soled the market down to the level at $97.75. The key will be to test the $95.70-90 level over the coming sessions.
Futex View
Assuming there is some sort of agreement made over the US debt ceiling, we favour another test of the recent highs at $100.60 and on to $101.25.

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.

26th July 2011
Bond Overview

The German Bund markets have seen very volatile trade over the last week. The market moved sharply higher leading into the new Greece bailout agreement heading into the end of the last week, however has recovered impressively since then to trade around the 128.50 handle this morning.

Thoughts from the Trading Floor

From a technical perspective, German Bunds have potentially staged a key weekly reversal. The market has recovered from firm support at 3.5%, which coincided with the 119.85-95 area. The market is trading around the 2.74% yield mark, having made a high in price around at the 2.50% yield mark earlier this month. The market has seen a deep pullback to the 2.94% mark towards the end of last week and recovered impressively since then. The lows, in price terms, last week just below the 126.50 handle is a key support area and the market found firm buyers around here. Thus the market skew remains short to medium term bullish above here. If sellers are to find their feet again, they must look to take this area out. Otherwise, a move back towards the 129.30 level seems the most likely on the cards. Today may be a key day in terms of which way the market may find firm momentum heading into the rest of the week. A day close above yesterday’s highs at 128.45 may signal further. Bears must look to protect this from occurring.

The recent days’ have seen a stark volatility in the peripheral debt markets. Last week’s announcement of further aid measures for Greece and the establishment of a ‘firewall’ around the rest of the periphery saw a dramatic flight into risk assets across the board. Although it remains to be seen whether these moves can be sustained as they may only be a brief respite before further deterioration occurs in the coming weeks. We have already seen somewhat of a sell-off in Spanish and Italian debt markets over the last 2-3 days, a sign that investors remain sceptical of the measures that were out into place last week. Italian BTPs have since given back much of the strong gains seen last week. This has resulted in peripheral linked equity markets underperforming the German Dax index to a large extent. Over the recent weeks we have started to see a quickening of pace in the peripheral debt turmoil. Markets are now quite keen to give back any euphoric moves quite quickly, as opposed to a few months ago where the moves on the back of bailouts and other new measures would persist for several weeks. This market behaviour should keep the bunds well supported.

Bull View

Bulls will need to protect the 126.39-64 level if they are to maintain upside momentum. A day close today above the 128.45 level will also ensure that bulls remain strong.

Bear View

Bears will need to protect the 128.45-55 level. If this is achieved they need a move back below the 126.39-64 level in coming days in order to capitalise.

Futex View

We remain bullish the bond. We would back the Eurozone crisis to quicken in pace going forward as we fast approach the end game this year.

25th July 2011
Equity Overview

All in all, a pretty strong week for equity markets as traders sought comfort from the deal made by EU leaders on Thursday to help Greece, Ireland and Portugal in their attempts to recover from and repay the previously received bailout funds.

Thoughts from the trading floor

Last week saw a deal reached by EU leaders that allowed for a reduction in the interest payments made by Greece, Ireland and Portugal as well as more time to pay the debts off. Agreements were also made that allowed the EFSF to buy bonds on the secondary market, and extend credit lines to other countries that have so far avoided the need for a bailout, should they struggle to raise funds in the open market. This deal created a large bullish sentiment for the week as the S&P 500 futures closed the daily gaps previously left at 1329.25 and 1344.25, wiping out areas expected to provide strong resistance with relative ease.

The market squeezed through resistance seen at 1346.50 but only reached a high of 1347.75 before coming off slightly. The market gapped down over the weekend and during the Asian session as the impasse continued in the US between the two major parties negotiating a deal on the US debt ceiling. It seems strange that the markets have failed to pay more attention to this situation so far as we are now just over a week until the supposed 2nd August deadline to reach an agreement. European markets have again recovered this morning after opening much lower and it will be interesting to see if they manage to hold on up here or whether this is simply washing a few weak shorts out before they really make a decent move lower.

Resistance in the S&P500 futures lies first at 1335.00 before 1346.50 which is just below the recent high of 1347.75. A move back above here and we would really expect the yearly highs to be tested in the next few weeks. 1315.00-18.00 should act as good support if we do continue lower. 1306.00 may provide a small bounce but the major support in the market remains the 1290.00-93.50 level that we failed to break last week.

Important events this week.

● Monday: Texas Instrument earnings
● Tuesday: UK GDP, US Consumer Confidence, New Home Sales. Ford, 3M, Amazon
● Wednesday: US Durable Goods. Boeing
● Thursday: US Initial Claims, Penidng Home Sales. Motorola, Exxon Mobil
● Friday: US GDP, Chicago PMI. Aon, Chevron

Bull View
Having closed the daily pit session gaps previously left at the beginning of the month the market has removed the extremely bearish chart patterns. Though we have opened lower this week, a move back to the 1346.50 level and close above should lead to further buying with a test of the yearly highs eyed in the medium term.

Bear View
The bears have lost all momentum in the market, with even a lower open this morning failing to provide any follow through. Perhaps the biggest bearish play will come on the back of continued problems with talks over the US debt ceiling. A break of 1325.00 in the short term should lead to 1315.00-18.00 being tested soon after.

Futex View

We traded down to our important level last week at 1290.00-93.50 and since then we have seen an impressive bounce. Our bearish stance has been removed with the closing of the daily gaps, though we still see potential for moves lower as we approach the deadline for the US debt ceiling agreement. Another break above 1346.50 however, and we would expect a strong leg higher.

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

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

Thoughts from the trading floor

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

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

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

Bull View

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

Bear View

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

Futex View

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

20th July 2011
Commodity Overview
Focus on Oil

WTI Oil futures have remained relatively range bound over the past few sessions as a lack of news has prevented the market from moving in any real direction. The volume has rolled to the September contract and so we will now be quoting this contract from here on in.
Thoughts from the trading floor

The past few sessions have been relatively quiet for WTI Oil futures with the lack of a dominant theme in the market taking play. Last week we had Fed chairmen Ben Bernanke first suggest that more QE was on the way before appearing to retract that opinion the very next day. This resulted in a bid into risk assets before mainly selling off again. There are still doubts over the peripherals in Europe but the serious fears seem to have subsided for now which has led to Oil climbing back towards the top of its range during yesterday’s session.
Technically the the $99.25-40 area is providing resistance for the market and marks the top of the recent range - one we have been trading in since the beginning of July. This area will need to break and close above before we see a move higher and the $100.00 will obviously be eyed first. If we begin to trade back above here the longer term sentiment may begin to turn again. Resistance above here lies at $101.25 and $102.00. To the downside the daily double bottom this month at $93.50 marks the low of the trading range and is key support. Just above here there is also support in the $94.20-60 area. It would take something major to get the market back down here over the next few sessions but these areas should provide buying opportunities.
Last night’s API showed a huge draw down of 5179k in Oil stocks. This compares with the DOE estimates of a draw down of 2000k. The Gasoline showed a build of 1957k barrels, compared with the DOE estimates for a draw of 250k barrels. The API numbers were mixed but if we see these readings mirrored in the DOE release we expect to see more upside pressure in the Oil.
Bull View

The market is trading above the $97.75 level and as long as we see a close above here the bulls will target the recent highs made at $99.25 and $99.40.
Bear View

The bears will need to defend the recent highs if we get there as a break could see increased upward pressure. A move back and close below $97.75 should see $96.30 targeted at the least.
Futex View
We still favour trading the July range until it breaks as we have yet to see any real direction in the market. In the medium we are turning slightly bullish and a break above $100.00 should see some weak shorts covering, with a move to $101.25 at least.

18th July 2011
Equity Overview

A pretty volatile week for the equity markets as they sold off hard on Monday and Tuesday before recovering going into Tuesday afternoon. Since the S&P 500 futures have traded in a large 30 tick range, currently trading near the lows of this range this morning.

Thoughts from the trading floor

A continuation of Friday’s sell off saw the market break down on Monday and Tuesday quite dramatically as fears over Spain and Italy increased among investors. Already in sell mode following Friday’s shocking NFP reading, the S&P 500 future sold off a further 40 handles by late Tuesday morning, making a low at 1295.25 as panic set into the markets with Spanish and Italian bond yields in particular blowing out.

The market stage a good recovery going into Tuesday pit session though and since then we have been relatively range bound between 1302.00-04.00 and 1323.00-27.00, though the markets have been particularly volatile in this range. These areas remain key support and resistance this week and a break in either direction should so see a continuation in the move. Due to the daily gaps made in the pit session on Monday and Tuesday the medium term outlook is still bearish. A break below the 1302.00-04.00 area will likely lead to a retest of the recent lows at 1295.25. On the upside, a close above 1329.25 is required if the market is to regain some bullish momentum, where 1337.50 is the next resistance.

The main focus this week again is likely to be the peripherals in Europe. The European stress results released on Friday fell mainly in line with analyst expectations but the sovereign debt crises is still hanging over the markets with Spain and Italy now in particular focus. The bond yields this morning are again creeping out, some to the widest levels seen for 15 years and this is likely to cause more panic among traders. Moves in these yields may dictate the direction of the market over the coming sessions though with European data out and earnings season in full flow we may see some volatile moves on the back of releases to the market.

Important events this week.

● Monday: Halliburton, IBM earnings
● Tuesday: DE ZEW, US Housing Starts. Bank of America, Goldman Sachs, Wells Fargo, Johnson & Johnson, Yahoo!, Apple
● Wednesday: UK BoE Minutes, US Existing Home Sales. Ebay, Intel
● Thursday: UK Retail Sales, US Initial Claims, Philly Fed. Morgan Stanley, Microsoft
● Friday: DE IFO, EU Industrial Orders. GE, Ford, Catepillar

Bull View
The market bounced and hung on well after initial big losses seen on Monday and Tuesday morning so any retests lower will have to be defended again. The first upside target will be the top of last week’s range, around 1323.00-27.00.

Bear View
The market is back down at the low of the recent range and the bears will look to break support at 13002.00-04.00 with a view to testing the 1295.25 low of last week. This will be a key test for the market.

Futex View

With the island reversal and daily gaps on the pit session holding last week we remain bearish in the long term and after some further poor US numbers and doubts over the Eurozone still lingering, we further another move lower. We would look for 1315.00 to hold to the upside and see how the market reacts if we get back down to 1295.25 again. 1290.00-93.50 is still an important area so we may see some buyers come in again here.