Global Macro Update
Submitted by Nic Lenoir of ICAP
We start in Fixed Income, the long bond future broke out the 115-19 resistance level yesterday late in the session, and gapped up this morning. Here technically as long as the gap is not filled and the bond does not trade below 115-21, the market should rally toward the channel resistance at 117-27/28. This is technically our preferred scenario following our buy recommendation last Friday. Conversely, should we be wrong and the market breaks below 115-21, the 115-00/114-19 should be a huge support zone (if 115 is convincingly broken on a daily close the next support is 111-25!).
We recommend taking profit on the ED/L Z0/H1 (Eurodollar/Short-Sterling box trade) selling at +7. We had initially recommended buying the structure at -2. The ER/ES Z0/H1 (Euribor/Euroswiss box trade) is currently at +0.5, and we recommended buying around -4/-6. We would possibly take partial profit but the trade should have more upside potential. Finally the BAM0/U0/Z0 butterfly is trading -4/-2. We recommended selling at 0. Keep in mind the BAH0/M0/U0 fly rolled out at -28.5, so the carry selling BAM0/U0/Z0 is very positive. Sadly I must say hardly any of our clients put the positions on. I am still absolutely convinced that the current environment in Fixed Income is not one in which traders should chase home runs and an ever elusive secular bond bear market (at least not until we trade under 111-25 in 30Y future), but instead one where money will be made extracting carry and avoiding the choppy outright price action.
In FX we note a very interesting reversal in AUDCAD right on the 50/100-dma bearish cross. There is a key support at 0.9260 (a break below would be resolutely bearish). In the meantime, we await to see if the market remains under the 0.9476 resistance, which if broken will confirm upside towards parity, and even possibly 1.0680/1.0840. In parallel, we note that gold has just hit the short-term channel resistance at 1,118. The key medium term resistance remains 1,135, a break of which would confirm a move towards new highs. We stick to our buy recommendation initiated at 1,080/1,090 but would clearly be weary of a break back below 1,100.
Good luck trading,