Bank of England just held interest rates at 0.5% to aid the economic recovery and they held its bond-purchase program at 200bln pounds. This was in line with market expectations. http://www.bloomberg.com/news/2011-07-06/king-diverges-further-from-europe-as-boe-set-to-maintain-record-low-rate.html
ECB interest rate announcement is the major event today and the market expectation is for a 25 bps increase to 1.50%. We just saw The Portuguese bond yields widened to 17.8% yesterday and the CDS market has upped the chances for sovereign default across the board basically. I expect to see a decent move following the ECB press conference today. I think the largest potential move in the Euro will be if Trichet is more dovish than anticipated in the press conference at 14:30.This will flatten the interest rate path and hit the Euro. If Trichet is more hawkish, I expect to see a short squeeze higher. However the latest scenario is less likely, given the recent news on the European debt crisis. Trichet is not expected to use the strong vigilance word today. If he does it would indicate a rate hike next month as well, which I see very unlikely.
Short dated option volatility is up in the Euro ahead of the ECB and NFP payrolls and overnight is trading at 21%, up 2% from yesterday and 1 week is at 13.3%, up 1% from yesterday.
We had a mixed equity market in Asia, with Shanghai down 0.58% and the S&P 500 futures are trading above the 1340.25 key resistance in Globex. I think a daily close above 1340.25 level in the S&P 500 emini futures would open for a test of the yearly high at 1361.
We have both US ADP employment data and US initial jobless claims out today, which can both move the market substantially and shape expectations for tomorrow’s US nonfarm payrolls. So keep an
I still think CHF looks rich and I favor going long below 1.2050 for a move back to 1.2250.
I am still looking to add some type of position in Corn following the huge sell off week, but I have not made up my mind what the position will be yet. I will come back on that during the next few sessions.
I will keep an eye on the US debt ceiling talks going forward, some talk of a possible of a new Homeland Investment Act that would allow repatriation of overseas earnings at a lower tax rate. This happened last in 2005, which saw the USD strengthen by about 15% vs. Euro and 20% vs. Yen. This make it interesting to look at the Yen, which has been range bound for a few months, with high at 81.78 and low of 79.70. I am longer term bearish on the Yen and I think we could see a break out higher in the next week or so. A trigger could be a strong than expected NFP report. See chart next page.
Today’s calendar (CET):
13.45 ECB rate announcement
14.15 US ADP employment data
14.30 ECB/Trichet press conference
14.30 US initial claims
16:30 DOE Crude oil inventory
18:30 Feds Hoenig speaks in Oklahoma
Looking at a few interesting points in the markets trading wise:
- A daily close in the S&P 500 futures above the high from 31st of May at 1340.25 would open for a test of the yearly high at 1361. Break out level of 1317 is now key support.
- Crude punching through the 96.00 resistance yesterday, next key level is 98.35.
- Silver bouncing off the lower end of the last month’s range of 32.75 to 38.76. Can we head back up towards the upper end of the range?
- Gold got up to 1534 and I now expect it to trade back down to at least 1520 support.
- 100 day moving average coming in at 1.4256 in the Euro today, so expect bids ahead of that. Watch out for noise during the ECB press conference.
Interesting news stories:
Exclusive: Treasury secretly weighs options to avert default - Reuter -
http://www.reuters.com/article/2011/07/07/us-usa-debt-exclusive-idUSTRE7660GE20110707
Movement in Budget Impasse - The WSJ -
http://online.wsj.com/article/SB10001424052702304793504576430301748287970.html?KEYWORDS=Movement+in+Budget+Impasse
The Only Reform That Will Restrain Spending - The WSJ -
http://online.wsj.com/article/SB10001424052702304760604576428273248743348.html?KEYWORDS=demint
How the private sector could rescue Greece - The Telegraph -
http://www.telegraph.co.uk/finance/economics/gilts/8621006/How-the-private-sector-could-rescue-Greece.html
Europe declares war on rating agencies - The Telegraph -
http://www.telegraph.co.uk/finance/economics/8621520/Europe-declares-war-on-rating-agencies.html
US will enter second recession if debt limit is not raised, warns President Barack Obama - the Telegraph -
http://www.telegraph.co.uk/finance/financialcrisis/8621582/US-will-enter-second-recession-if-debt-limit-is-not-raised-warns-President-Barack-Obama.html
Germany Revisits Greek Debt Plan - The WSJ -
http://online.wsj.com/article/SB10001424052702303544604576429754231439240.html?mod=WSJEUROPE_hps_LEFTTopWhatNews
Moody's: Stress Tests Set to Fail 26 Banks - The WSJ -
http://online.wsj.com/article/SB10001424052702303544604576429713440829554.html?mod=WSJEUROPE_hps_LEFTTopWhatNews
What to Expect From Trichet’s Press Conference - the WSJ -
http://blogs.wsj.com/economics/2011/07/06/what-to-expect-from-trichets-press-conference/
‘Good Ship Dollarpop’ Is About to Sail Again - the WSJ -
http://blogs.wsj.com/source/2011/07/06/good-ship-dollarpop-is-about-to-sail-again/?mod=WSJBlog&mod=thesource
Basel on wrong path to tackle systemic risk - The FT -
http://www.ft.com/intl/cms/s/0/d063596c-a268-11e0-9760-00144feabdc0.html#axzz1RNAE222R
Inflation fears spark rate rise in China - The FT -
http://www.ft.com/intl/cms/s/0/d077fe34-a7be-11e0-a312-00144feabdc0.html#axzz1RNAE222R
Investors overreact to the blindingly obvious - The FT -
http://www.ft.com/intl/cms/s/0/70a3e368-a801-11e0-afc2-00144feabdc0.html#axzz1RNAE222R
Downgrade blow knocks wind out of Portugal - The FT -
http://www.ft.com/intl/cms/s/0/90ef90b4-a800-11e0-afc2-00144feabdc0.html#axzz1RNAE222R
Doubts over banks’ role in Greek bailout - the Times -
http://www.thetimes.co.uk/tto/business/economics/article3085717.ece
China May Limit Rates on ’Controllable’ Inflation - Bloomberg -
http://www.bloomberg.com/news/2011-07-06/china-may-pause-after-third-rate-move-as-wen-bets-inflation-controllable-.html
Technical’s and comments
Euro: We are back below 1.4350 after the Portugal downgrade yesterday. The resistance levels today are the low from 7th of June at 1.4564 and the high from the same day at 1.4695. We have a series of support levels from 1.4320 down to 1.4237.
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 79.70 to 81.78.
Swissy: Have resistance at 0.85 at the moment, which is the pivot level in this pair for now I think. Bearish below this level and bullish above.
AUDUSD: Stronger than expected Aussie Jobs data overnight supporting the AUD. We have strong resistance around the 1.0770 level, so would not chase the price action above that level. The buy in level of 1.0550 or so is the place I would look to try long again.
USDCAD: Rapid move lower and I think it makes sense to wait for a rally back up towards 0.9730 or to get short again.
S&P Future (ES): Key level at 1340.25 and a daily close above here would open for a test of the yearly high at 1361. Key support is now Friday’s break out level of 1317.
Gold: Hit the extended upside target of 1530 yesterday and now I expect a correction back to at least 1520 support.
Crude oil: Took out the 96 key resistance yesterday and this 96 level held on the test lower this morning. That is bullish confirmation for me and looks like we will test next key resistance at 98.35 next, followed by 100.39. Key support is now down at 96. If we break below 96, the risk is for stop loss festival will send it lower.
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