Forex Signals: The EURUSD gained as strong Apple earnings overnight

S&P 500 (Sep 11) INTRADAY

Review After a positive Asian session and stellar Apple results the S&P started the session on the front foot trading at 1329.75 by 12:00 BST. Apple smashed expectations with third-quarter revenues up 82 percent and profits up 125% year on year. The corporate picture continues to look positive and traders entered longs on the record value of shares in relation to earnings. However, as traders poured more scepticism on the ?Gang of six? deal actually passing through the house as details were looked at more closely sentiment in the US was once again driven by politics rather than by the performance of the companies within the index.

Strategy Today we have key earnings from Nokia in Europe and from Morgan Stanley in the US which have both been better than expected with MS shares trading 5% higher in pre-market. However once again politics will take the centre stage today as perhaps the most important European meeting in re-cent history takes place in Brussels this afternoon. This morning risk assets, including the euro, have sold off as it looks as though a structured default of Greek debt may be passed through. However, there would be a way to offer EU collateral to Greek banks to allow them to technically stay solvent and still receive ECB aid. It is incredibly difficult to predict the details of the meeting but we expect further ESFS flexibility and a united stance between France, Germany and the ECB. Our neutral strategy reflects reduced size on the position due to such uncertainty, however we believe that the fact a more concrete agreement looks likely from the EU (pending details) we may find support at 1315.50, which came in close to support overnight and this morning, as well as providing firm resistance on Friday 15th July.

Alternative Further non committal from Eurozone politicians or lack of details on any resolution will impact heavily on risk assets and the S&P will come under pressure. A break of S2 at 1313.00 may lead to a move back towards 1300.

EUR/USD INTRADAY

Review The EURUSD gained as strong Apple earnings overnight and expectations of an agreement over a second Greece bailout ahead of Thursday?s Euro-group summit provided risk appetite early in the European session. A disappointing US Existing Home Sales led to dollar weakness and although conditions were choppy in the US session, the currency pair grinded higher to post a gain of 0.68%. Overnight, Merkel and Sarkozy have agreed on a plan for a second Greece bailout which will be announced at the summit today leading to a break of yesterday?s high and a move that just fell short of the 1.43 handle.

Strategy Today?s session will be dominated by Euro movement in response to developments at the Euro-Group summit. We have already seen the Euro drop sharply off comments from EU Junker, who on arrival at today?s summit indicated that a selective default for Greece was a possibility. This has been backed up by Merkel comments and news that the ECB would back such a plan. Ultimately we feel that this is the best route to adopt in the long run in order to avoid contagion but in the short run market reaction has initially been negative. However, we feel this negative reaction will dissipate as investors realise that the fact a resolution has been reached is ultimately more significant than any short term negative repercussions from a selective Greek default. Therefore, we have a long entry for this after-noon at 1.4133 anticipating a bounce.

Alternative Scenario If discussions at the Euro-Group summit break down then this will of course generate another significant move lower for the Euro and a break of 1.4108 may lead to an accelerated move towards key support at 1.4014.

US 10Y T-Note (Sep 11) INTRADAY

Review Yesterday?s entry short at 124.260 capped the upside of yesterday?s market action three times, once at 10:30, once at 14:45 and once at 17:40 BST allowing traders multiple opportunities for entry as Treasuries traded in a tight market, trending slowly lower. Once again we had a stand-off between a positive risk outlook based on corporate earnings and a concerning political outlook both in the US and the EU.

Strategy We are positive risk today as for the first time in a long time it seems like the Eurozone will pro-pose realistic actions on a realistic outlook for the Eurozone debt crisis. The fact that Greece may have to go through a structured default and the fact that the ECB will then still accept Greek debt as collateral seems like a positive way forward. The Devil, as always, will now lie in the detail and ministers must be able to quantify how the private sector will be involved. The market will no longer stand for vague details. We will look to enter short at the same entry point as yesterday with a significantly closer stop at today?s R1 124.280. We do not expect any new news regarding the US debt situation today but will of course adjust our strategy accordingly should new information be received.

Alternative Scenario Further delay or a lack of a detailed plan out of the Eurozone meeting today will spark demand for safe haven assets including Treasuries, driving us back towards Tuesday?s high 125.030.

Crude Oil (Sept 11) INTRADAY

Review Crude prices went through another whipsaw session yesterday as the DOE inventory data showed a large build in distillate stock piles that offset any bullishness from the overnight API data. This lead to heavy selling pres-sure that took Nynmex crude prices briefly below the $97 handle before a strong rebound returned prices back into the earlier range around $98.50. This resulted in a doji candle on the daily chart as again oil prices struggle to find con-sistent direction.

Strategy Overnight, HSBC?s Chinese PMI data came in at 48.9 which is below the significant 50 level and therefore marks the first contraction in manufacturing output in China in over a year. Oil prices dropped as a result due to demand risk and the downside move was added to as German PMI data disappointed and news that the EU summit may conclude that a selective default for Greece will be allowed to happen. The oil price movement this afternoon will be driven by the general market sentiment surrounding the EU summit. We feel a selective default for Greece is the best solution in the long run assuming Greek banks can be kept solvent via alternative measures. So we feel the initial negative reaction this morning has offered a buying opportunity albeit one with significant risk as ultimately details on the Greek deal will remain sketchy until today?s meeting has concluded.

Alternative Scenario Lack of detail or indecision following the EU summit will be very damaging for risk as-sets and a break of $96.75 may lead to a further accelerated move lower to test support at S2 at $95.79.