Submitted by Nic Lenoir of ICAP
The key observation today is crude oil which is attempting to break out to new highs. A close above 82 would be resolutely bullish. Given recent price action and the lack of any resistance is seems the market is bound to break out to the upside. However it is worth noting that, until the spike that occurred around inventory releases, we had a possible evening star formation which would be validated if crude closes below 80.63. We therefore have a very tradable reversal/break-out market in place. A retracement should take us back to at least $75, while on the upside I see 96 as the next extension of the rally with intermediary resistance at $87.20 marked by the topside of the channel.
In rates, we focus on 10Y Treasury futures again. On the 180-minute chart we left the initial 3/ wave target we had indicated over 2 weeks ago to show how well the fractal nature of this wave is respected. If this remains the case we should expect that 117 at the most will not be bypassed on the upside and the next major support remains 113-20/25. The daily chart shows how key this support shall prove. This was our initial 2010 target for 10Y rates of approximately 4.10%. After this is tested we think the market will range for a while. Indeed break would probably lead to some heavy liquidation and the resulting spike in yields would probably hurt carry trades provoking risk aversion and demand for Treasuries that would stop the slide in bonds.
Equities remain at relatively exhausted levels. The Nasdaq is running close to its daily RSI resistance, the Nikkei is struggling to fill its gap, and S&P futures are struggling to advance against the channel resistance. We continue to believe that the market should have a hard time breaking out convincingly in these conditions and a retest of channel support seems needed before a proper bullish formation can happen. We remain fundamentally bearish but if as long as we lack a catalyst for the sell-off and liquidity remains ample we will have to make due with a test of channel support.
Finally the EURUSD remains very clear as it held the 200-dma support. The current consolidation should not bypass the 50-dma on a daily close, and 1.4570 is intermediary resistance. A break of the 200-dma as support will confirm our medium/long term bearish conviction.
Good luck trading,