Review There are now 5 consecutive Djois on the daily chart for 2012. The difference between daily opening and closing prices has been 10 ticks, 5 ticks, 0 ticks, 3 ticks and 3 ticks so far as the markets remain in limbo until the next major development occurs. We had a short strategy for yesterday’s session looking to play the range. Our entry was at 1280 but the price action only lead to a high at 1278 and so the topm of the recent range was not reached as another quiet session played out. Merkel and Sarkozy’s meeting was the main focus as the Eurozone leaders begin the process of finalising the details of the fiscal compact. Although both leaders came out with bullish comments, in reality no major details have surfaced. However it does seem Mrs Merkel has fallen into line with the idea that the Eurozone solution needs to be two pronged with action on budgetary discipline but also action on stimulating economic growth, which is a positive development.
Strategy This morning Fitch have announce that they will not be downgrading France within the next 12 months. Whilst on the face of it this seems short sighted, anything is still possible in this crisis and should Greece exit the Eurozone for example it would seem unlikely that France should still deserve their coveted AAA, you of course have to factor in that Fitch are French…. Otherwise, the mood of the markets are more positive this morning with a mild and broad based risk-on move, which has taken the E-mini S&P up to test the key medium term resistance of the October 2011 high at 1289.25. This is a very important level and should the bulls breach this then it opens the door to a move to 1350 in the coming weeks. We have a long strategy for this afternoon using Friday’s high as key support.
Alternative Scenario A break below R1 at 1279.75 may lead to another daily doji with a like close around 1274.
EUR/USD INTRADAY
Review Yesterday was an uneventful day for trading with not much going on in the markets. The most notable events were SNB's Hildebrand resigning and the meeting between France’s President Nicola Sarkozy and Germany's Chancellor Angela Merkel. Ahead of the meeting we predicted it to be a non event which was true to the extent that it did not create much market movement. Outcomes included moving forward in creating a mechanism to enhance market confidence and that they were looking into ways to speed up the capital payments to the ESM. Yesterdays short at 1.2813 was not filled, albeit we were correct in regards to direction. As much as we were prepared for a slow session we anticipated more movement than what we saw through the session.
Strategy We are continuing with the outlook we have had so far in 2012 and are going for another short in today’s strategy. This morning’s main news was Fitch affirming Frances AAA status throughout the year - a decision we at Amplify would have a hard time defending as France have not been trading as a AAA country since November in terms of their 10yr yield level and we see increased pressure on the French economy and its banks. This afternoon we expect another quiet session with a light data calendar with IBD/TIPP Economic Optimism (Prev 42.8) and Wholesale Inventories (exp 0.5%) at 15:00GMT and API numbers at 21:30GMT.
Alternative Scenario A break of 2011’s low may trigger a move up to 1.2900 handle.
US 10Y T-Note (Mar 12) INTRADAY
Review Our strategy yesterday was to enter long Treasuries at last Friday's low 130.120. Whilst this was the correct call on direction unfortunately the entry point was too conservative as T-Notes found a base at 130.185 before pushing through 131.000. Italian yields and the Eurozone were in the spotlight once again dampening risk appetite as the S&P 500 posted its fifth Doji in a row. T-Notes remain elevated trading well above the October and November lows even as stock indices start to challenge the highs seen since the European summit late October.
Strategy We recognise that safe haven bonds will take longer to price in a more positive outlook however whilst stocks reach levels not seen since August we expect some pressure to come into safe Haven US bonds. Further the better than expected employment scenario within the US has made further Quantitative Easing less likely which may also dampen demand for Treasuries, the main benefactor of such monetary easing policy. Interesting many traders will be waiting for funds to move out of Treasuries for a confirmation of a rally in risk. Not withstanding surprise negative news we are confident in a pull lower in T-Notes and will enter short at the pivot, 130.275 which also comes in as this morning's high with a target at S1, also yesterday's low, 130.185.
Alternative Scenario Should the Eurozone once again come back to dampen risk appetite T-Notes will attract safe haven funds and break yesterday's high at 131.041.
Crude Oil (Feb 12) INTRADAY
Review More US dollar strength yesterday helped Nymex crude continue its drift lower, following the downward trend line that has been in place since Thursday’s high. We had a short strategy but the pullback prior to the Nymex pit open led to a top being put in place at $101.87 which was just shy of our entry at $102.15. From there the sell off took the market down to $100.10 and the price of oil has only been this low in 2012 during the first hour of trading on the first day. From that low crude reversed 150 ticks following news that the EU is expected to bring forward a key meeting on the Iran oil embargo to January 23rd 2012 . Crude finally closed flat on the day.
Strategy There has been a mild risk-on move this morning which has produced some US dollar weakness and this has allowed oil priced to continue to upward momentum that began from Yesterday afternoon’s low just above the $100 handle. The move has forced the market through the short term downtrend and allowed prices to briefly breach the $103 handle which is a 3% gain in the last 20 hours. There is very little of note on the economic calendar for today and so the main focus for oil prices will be the API inventory numbers due out after the close. Until then we look to follow today’s positive trend with a long entry at R1 at $102.27.
Alternative Scenario A break below this morning’s support at $101.82 should see a further sell off to test support at $101.30.
