Forex Signals: Global stock markets continued their bounce yesterday

S&P 500 (Sep 11) INTRADAY

Review Global stock markets continued their bounce yesterday as investors took the better than expected US Durable Goods orders as a sign that the US economy may be stabilising. There continues to be an asset allocation switch back into equities and this was accelerated yesterday with funds flowing out of Gold with the precious metal falling over 5% in its worst day for 18 months. The upward trend this week has been very healthy with consistent higher lows and higher higs each day. The ranges the market has been trading in has been extreme with yesterday being no exception. There was a 20 point drift lower through the Asian session following a Japanese downgrade and worse. But after the low was put in place at 1142.50 the market enjoyed a 35 point rally on strong volume as investors continue to see these depressed levels as an attractive long term entry point for the asset class.

Strategy Steve Jobs has stepped down as Apple CEO overnight and this has lead to the Apple stock dropping 5%. Despite this the E-mini S&P remains around yesterday?s highs with the upside being capped by resistance at 1177.50 which was the 16th August low. The main focus this afternoon will fall on the US Initial Jobless claims. The four week average for this reading has dropped for 7 weeks in a row down to 402.5k and bullish investors are hopping for today?s figure to fall below 400k to continue this positive trend. However, the main event this week is still to come tomorrow with Bernanke?s Jackson Hole statement with investors still hoping he will signal that the Fed is willing to take another step closer to implementing QE3. We remain positive on equities today which is a stance that has worked well for us all week.

Alternative Scenario Worse than expected Initial Jobless Claims or news that Bernanke will not signal QE3 may lead to a retracement of some of this week?s gains. A break below Friday?s high at 1153.25 may lead to a test of support at 1142.50.

EUR/USD INTRADAY

Review In the danger of sounding like a broken record, EUR/USD continues to remain within it?s summer range of 1.4696 to 1.3837 which in August has narrowed to 1.4517 to 1.4054 despite the broad correction and volatility seen in other risk assets. As the ugly contest between two embattled currencies drags on, trading opportunities remain light as traders look elsewhere to profit from USD or EUR speculation rather than trading them against each other. However, traders that entered close to our entry long at 1.4377 took advantage of perhaps the best opportunity of the day at 09:00 BST as the pair moved up to hit 1.4481 at 15:00 BST before erasing their gains into the afternoon to close slightly lower on the session.

Strategy We expect the range bound conditions to persist today for EURUSD and look for a long entry on a drop back to support at yesterday?s low of 1.4381. The reason for our preference for the long side is because yesterday the USD strengthened against all currencies yesterday helped by the huge outflow of funds out of gold and possibly investors feeling that the Bernanke will not indicate QE3 tomorrow. The only currency where the dollar didn?t strengthen against was the Euro. To be honest, we feel that there is no obvious reason as to why the Euro is being supported against the Greenback but ahead of Bernanke?s speech tomorrow we are happy to continue this long bias for the currency pair.

Alternative Scenario A risk-off move following worse than expected Initial Jobless claims or further indication that the Fed is not ready for QE3 may lead to dollar strength and a break below support at 1.4347 may lead to a test of Friday?s low at 1.4259.

US 10Y T-Note (Sep 11) INTRADAY

Review Finally we broke the trend line support we have been monitoring for some time now as treasuries had the biggest one day drop in over two weeks. Yields were up 14 basis points to 2.29 per cent, moving sharply upward above 2.20 percent for the first time this week. This was the first significant reversal since they hit their 30-year low?s, going below 2 per cent in mid-August as traders displayed mild ?risk on? appetite with safe havens of treasuries and gold seeing significant selling pressure. The downside was added to by a slightly disappointing 5yr note auction.

Strategy Technically the pattern is now bearish as the medium trend higher has been broken. As you can see from the chart below 129.000 forms the base of the longer term head and shoulders pat-tern and this level will remain a target whilst positive market sentiment prevails. Our entry short at the pivot level 129.260 reflects our caution in going against demand for safe haven asset in such an uncertain environment. Our key level yesterday 130.025 will now be a used as a stop on our short position. On the data front we have initial jobless claims which may provide direction on an otherwise light volume day in the build up to Bernanke Jackson Hole speech tomorrow.

Alternative Scenario In such an uncertain market demand for safe havens will remain prevalent on negative market news. A return of buyers could see the trend higher in Treasuries resumed.

Crude Oil (Oct 11) INTRADAY

Review Oil was fairly range bound yesterday due to a confluence of factors. The DOE inventory numbers were bullish, hurricane Irene is gathering strength and general investor risk appetite were all positive factors instigating a break above Tuesday?s high of $86.39 immediately after the DOE release. However, rally was capped at $86.57 before oil dropped back towards the lows in the final part of the session. The downside was driven by a strengthening USD and possibly investors beginning to think that Bernanke will not deliver QE3 tomorrow. Oil closed down 0.33% at $85.16 in a relatively tight ranging day.

Strategy We feel that today?s session may be similar to yesterday. We have a neutral stance with a slight long bias due to hurricane Irene. Energy companies planned to shut more than 28mln barrels of oil storage capacity in the Bahamas ahead of the hurricane moving up the East coast of the US. We feel the upside will continue to be restricted by a strengthening USD, the possibility of Gadhafi being toppled and risk of no QE3. We look to get long on a pullback to yesterday?s low at $84.55.

Alternative Scenario Oil may favour the downside should we see a risk-off trade from a worse than expected Inityial Jobless claims and a break below support at $83.40 may open the way for a test of support at $82.01.