Three Charts That Matter Today In The Risk Space

By Nic Lenoir of ICAP

As we have been discussing, so far the slide in risk assets has been the consequence of balance sheet deflation and USD funding shortage. While those forces have been strong at work recently central bank support in the currency market and central banks FX swaps have attempted to patch the holes in the ship's hull.

While the ECB is now openly intervening in the FX market and in the bond market, we have fresh recent examples of what effects central bank intervention has in the markets. For most of last year (post March) and until recently we have on numerous occasions along with many other people in the market highlighted the unbelievable correlation between days when the Federal Reserve was buying bonds in the market and post 11AM rally in equity futures and USD sell-off. Knowing that, it is not hard to imagine similar effects upon ECB intervention, with the exception that in a pro-risk environment EUR is strong whereas the Fed's support of the market has actually a negative effect on the USD. Is there additional outright intervention by the ECB in the FX market: that's possible, but either way we have a pretty clear picture of what their actions will result in for most asset classes.

Having said that, we turn to our EURUSD which highlights the ECB support bid around 1.2143. Technically speaking we have a triangle in formation. It is relevant because a triangle is in theory a continuation pattern, and as such would imply the next move is a break lower. However if the lower bound is enforced by an external force (like a central bank) then we must be weary of the fact the support may hold. We would not necessarily advocate positioning while the market is in this tight range but advocate playing a break-out. support is at 1.2143 and resistance is between 1.2305 and 1.2315.

AUDUSD is interesting because it shows that we have a resistance short-term at 0.8380 which if bypassed would help confirm an upward break-out of EURUSD and a pro risk price action.

Finally we see that 10Y Treasury futures are still in their uptrend channel but have been grinding along the support for the past 24 hours. If we see more market support in Europe or a bid in equities/risk expect the market to break the downside and move toward the medium term support zone at 118-15/118-30.

Good luck trading,

Nic

Comments

[lance_manion]

I love that:  "ECB's Property, Do Not Trespass"  LOL!

[dcb]

I love this guys posts, also the technical take. easy for those to say a tade, but they don't include the charts which gives them much fudge factors.

[dcb]

a good chart to add is UDN dollar bear. more long term you can see it is right at the bottm on the trend. long term support from the march low.

also I have seen many triangles "pop" have false breakouts. take care.