Global Macro Update

Submitted by Nic Lenoir of ICAP

The framework for the next few days remains unchanged since Monday. We continue to view a possible consolidation/modest recovery in risky assets after last week's sell-off. We gave back a lot of the advance on the S&P yesterday in the afternoon, but overall we are still consolidating above recent lows at 1,026 in the future and we keep our target zone of 1,064/1,070.50 where we will consider recommending new shorts. Interestingly the advance from the recent lows to yesterday's highs reported to last night's lows gives us an upside target of 1,070.50 which very much confirms our original projection.

The Dax has held the 100-dma very convincingly on a daily basis as predicted, and we keep waiting for a retracement to 5,600 before considering new shorts as well. It is absolutely worth keeping an eye on the Dax index because it is extremely clear technically in terms of the channel it draws and how well standard targets are respected.

Similarly a quick look at NZDUSD which is another good risk / carry-trade proxy shows how we have managed to hold the 55-dma as support for now on a daily basis and we would expect a bounce here over the next few sessions.

We would like to highlight in US treasuries the 10Y future support at 117. This is the neckline of a H&S pattern within the right should of a bigger picture H&S pattern with neckline and crucial long term support at 113-15. We very much expect to test 117 over the next few sessions, and the daily chart shows how the 200-dma has been resistance and envelop on the upside recently and is guiding us lower after the recent retest. It is worth noting that the relatively dovish statement by the Fed yesterday in light of some expectations by a few market participants of a more hawkish stance led to some steepening and selling in the long end. Overall ever since the Fed has announced the quantitative easing measures we have seen on many occasions the market eact negatively to it in the long end. Part of it used to be dealers and fast money accounts buying ahead of the Fed and selling back on the follow only to buy back lower later. But some of it stems rom the short-USD carry trade which has also led to some selling in the long end. Today was a perfect example, and we feel more selling is highly possible over the next few sessions especially if risky assets behave positively. A hold of 117 is crucial, as a failure to do so would lead to a 45bps move higher in yields most likely.

Good luck trading,

Nic