The European stress test has been analyzed over the weekend and the verdict seems to be that risk off modus is back. Italian vs. German bonds widens to 320 bps. USD is stronger this morning, gold at record highs and equities down. S&P 500 futures gap lower on the open and is down by 19 points or 1.4% as the time of writing (about 1 hour and 50 minutes into the session). It seems like market players are very short term in their trading views at the moment and more playing news as we continue to swing up and down the 1250 – 1350 range. No real directional conviction to spot and the volume in the S&P 500 emini futures (ES) have also been rather low recently. One thing I would like to point out is that the rally to make new highs clearly failed at 1352, which is actually quite negative in price action terms and makes me think we could see a rather aggressive down leg next below the 1250 support. For a break lower to materialize we need to see increasing volume on the down bars as we head lower and preferably the close to be at the very low or lower end of the daily ranges. This clearly indicates sellers taking over. We have a key support level in the S&P 500 emini futures (ES) at 1293.75, which was the former break out level. A daily close below 1293.75 is certainly bearish and opens for a test of 1250 support.
See S&P 500 Emini futures (ES) daily chart below:
Gold is making record high, trading 1606 in the spot at the moment. It seems that Gold is tracking US 10 year Treasury pretty tight over the last weeks, which makes sense. The risk for gold is clearly if we get higher rates in the US in my opinion. That might take some time though as the latest economic data have been far from good. More money printing is also of course bullish for gold and seems to be the major factor behind the latest rally.
The Euro is lower across the board as it seems the market see little positive for the Euro in the near term at least. EURCHF below 1.15 level, very rich in my opinion, but I am not looking to put on any position yet. EURGBP is back below 0.88 and we have the Bank of England minutes out on Wednesday, which is quite open in my opinion. Seen comments from Ernst and Young ITEM club that they are looking for rate hikes around November, but they did cut their 2011 UK growth forecast. See article below:
http://www.telegraph.co.uk/finance/economics/8643256/Interest-rates-to-rise-in-November-as-recovery-strengthens.html
Today’s calendar (CET):
12.00 Bundesbank monthly report
14.30 Canada motor vehicle sales
15.00 US TICS data
16.00 US NAHB housing market index
03.30 RBA Minutes
Looking at a few interesting points in the markets trading wise:
- Key level in the S&P 500 emini futures at 1293.75 that will decide the next directional move in my opinion.
- Looking for a move back lower in Corn to fill the gap at 669. Chart can be seen here: http://chart.ly/5y9bfyv
- Crude has key support at 94.50 and key resistance at 97.74, watch those levels for the next directional move.
- Looks attractive to sell US 10 year Treasury futures above 125, will update on Twitter if I open any positions.
Technical’s and comments
Euro: Euro looks weak below the 100 day moving average at 1.4293. I prefer selling rallies for a move down to the 200 day moving average at 1.3913 near term.
Cable: Sell on rallies towards 1.61 is my favored strategy today. I expect the 1.5900 support to hold, so possibly down there as well should work.
USDJPY: More up and down in the Yen, with lack of direction and focus this pair seems to be on the sideline for now. I remain longer term bearish on the JPY as the fundamental factors in Japan looks ugly, with huge public debt and unfavorable demographics going forward. I am looking for a break out to the upside of the 2 months range, which is 78.44 to 81.78.
Swissy: I am not looking to chase this pair lower at this stage. To me it looks actually more interesting to look at buying some calls. Will update on twitter if I do anything.
AUDUSD: Risk off and we are down towards the 1.0550 level again(, which has worked well as a long entry in the past, worth another try if we see 1.0550?
USDCAD: I prefer selling rallies below 0.98 for a move back to 0.9500.
S&P Future (ES): Key level at 1293.75, which is the former break out level of the move 1252 to 1352. We also have 61.80% Fibonacci retracement of the 1252 – 1352 move coming at 1290. Key resistance today is Friday’s high at 1315.50.
Gold: 1606 high so far, the sky is the limit. The most important I reckon is the US 10 year rate, so keep an eye on that.
Crude oil: Looks like plenty of selling towards 99.50 last week and I expect a move down to test the key support at 94.50 near term. Minor resistance at 97.74.
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