It All Starts And Ends With The USD
From Nic Lenoir of ICAP
There is basically nothing new to add to the picture. Maybe that is why the only thing going on right now is an unabated selling of volatility in both Fixed Income and Equities. The NFP number was slightly disappointing though not horrendous, just enough to convince people we do get QE 2.0 in November and not bad enough to send people into panic. Meanwhile we did get confirmation that 2009 employment figures were in fact worse than reported... in typical BLS tradition one might add. And I thought econometrics models were supposed to have an average deviation of 0 to the series they track! I guess you don't need a statistical backgroup to work at the Bureau of Labor Statistics.
The EURUSD and AUDUSD attached charts show that the recent trend is still intact. In that sense those two currency pairs will be our best indicators of a turn should it happen. As of now grains are all trading limit up and people are rushing back into commodities after yesterday's debacle so I would not hold my breath until we see a breach of the trend supports.
I remain bearish equities as we have not bypassed 1,154/1,165 for the S&P future, which was the recommended sell zone. However conviction is not intact especially since the price action looks more like a sideways consolidation than a reversal pattern. That being said I would not part with VIX November calls as they are a cheap insurance and we all know how quickly things can move when they head south. An excellent trade to go along with that position is buying the November 1,175/1,200 call 1x2 on mini S&Ps. You receive 1.25 ticks to buy the 1,175 and sell the 1,200 call twice. If the market grinds up in an attempt to bore us all out of our skulls irrespectively of the economic picture, you stand to collect up to 25 ticks. A buy stop on the future at 1,225 will help you sleep soundly without worrying of an upside blow-out which in my opinion is extremely unlikely to be forceful if it materalizes. And the beauty is that if the equity market rolls over you don't lose a cent because you got paid to put the trade on...
I also think a good way to hedge bearish equity positions or long VIX positions is to be long Fixed Income. I recommended to a few acocunts buying the 133.5/135.5 bund December call spreads this morning. So far it is working great, and the kicker is that if the stock market flash crashes you probably end up with higher bonds in general. The structure traded down to 31/31 and you stand to make up to 200 ticks.
On the radars should be Juncker's comments this morning that EURUSD above 1.40 bothers him. The Canadian Finance minister had some harsh comments for China, and Obama just called for the liberation of the Nobel peace prize winner (not himself, the latest one). That tells me at some point possibly soon we will see further deterioration of public relations and currency wars further ignited. Then there is always the mortgage disaster looming... Both require in my opinion a lot more attention than they markets have been paying to them.
Good luck trading and happy Columbus day weekend,