Global Macro Update

By Nic Lenoir of ICAP

Certainly the market was eager after a long weekend! I am not too sure what prompted EURUSD and the Dax to take off vertically at 9.30AM for US equities' open: was it the excitement about the German president's resignation, a 50bps widening in Italy's sovereign CDS in early trading, follow through rejoicing at Spain's latest downgrade Friday afternoon, or the excellent news out of the Middle East on Monday? There was a piece in Barron's this weekend entitled "time to buy" (I am eagerly waiting for the day they will print something entitled "time to sell") so maybe institutionals were waiting for US equities to open to start gunning. It doesn't make much sense in my opinion. The move came out of Europe most certainly given what we observed, but nobody confirmed our suspicion that it was central bank related.



It doesn't matter as much given that everybody I talked to is absolutely convinced it was the case. And if we believe the close in the S&P future we also know what the market thinks of it. While I honestly thought we would not bypass the 1,083 overlap, I keep a bearish preference as we remain below 1,106/1,113 where we issued our latest selling recommendation. The Dax, after a 3% move up in less hours than it takes to play 9 holes of golf on no news, has held below the 61.8% retracement of the latest sell-off. As long as we do not bypass 6,023 we could still technically be in a bear move, and in fact we could be piling up before starting a 3rd wave lower. We would not be stubborn if the resistance is bypassed however. We equate this level with a break of 9,870 in the Nikkei. If that level is taken out on the upside we would recommend buying on the break in fact because if there is one market that does not fake H&S or inverted ones for that matter it is the Japanese market. But as long as those conditions are not met we keep our bearish outlook and our modestly in the money short recommendation in the S&P future or AUDUSD.



Similarly, we see on the hourly chart that the 10Y Treasury future tested support without breaking so we remain in a bullish dynamic which coincides with weak equities. Watch closely for a break to initiate Treasury shorts to play a pull back to 118-15 but as long as we stay in the bullish channel we have a 123-08 target.



The only market which did not play tricks on us today was Gold which seems to be confirming a move towards new highs after holding the overlap at 1,027 on a daily close.

Good luck trading,

Nic