Forex Signals: The S&P endured a whipsaw session yesterday

S&P 500 (Sep 11) INTRADAY

Review The S&P endured a whipsaw session yesterday as initially risk aversion trades lead to continued heavy downside. Better than expected Eurozone PMIs in the morning had lead to a small rally encouraged by a slightly better than expected ADP employment report. However, it was rumours suggested that a meeting between the Italians and Asian investors had broken down suggesting that Asian support for Italian bond markets may be removed and this lead to a panic sell off. This took the E-mini S&P through the previous 2011 low set following the Japanese earthquake which triggered a technical break out that saw a further 10 point drop to 1230.25 to set an eight month low. However, in what appeared to be downside exhaustion or just oversold conditions, the market then performed a 30 point reversal resulting in the S&P closing back on the highs at 1254.00.

Strategy The market struggled to hold on to last night?s bounce through the Asian session. Japanese intervention in the currency markets is a positive for stocks as were the rumours that the ECB would restart its bond buying programme and this news kept equities elevated. However, the rumours of ECB bond buying have been diluted and markets have reversed a lot of yesterday?s bounce as EU?s Barroso has spooked investors with his alarmist comments that the Eurozone crisis is no longer only in the periphery. It is likely to be a choppy afternoon with Initial Jobless Claims and the ECB press conference at 13.30BST. Traders need to stay very alert to any important developments from Trichet and be ready to reverse strategies at short notice. Having said that we go into this afternoon favouring the downside as we have still seen no evidence of action from the EU or Italy to reverse sentiment and we feel this will eclipse any positive news that may come from the Initial Job-less claims if the number follows up last week?s and remains below 400k.

Alternative Strategy Positive comments from Tirchet may lead to a strong rally in risk assets. A break of resistance at 1261.75 is likely to lead to a subsequent break above yesterday?s high at 1264.25.

EUR/USD INTRADAY

Review The EURUSD rallied off the lows at $1.4143 yesterday in volatile conditions for the currency markets as the SNB decided to take measures against an ?overvalued? Swiss Franc. Rumours of India contributing to the Eurozone bailout funds as well as other Asian support for peripheral debt led to a morning surge before the currency pair topped out at $1.4372. A parliamentary speech from Berlusconi somewhat disappointed the markets after recent volatility in peripheral bond yields as the Italian PM showed little in the way of concrete plans to support Italian government debt. This capped the currency pair?s rise at our short en-try in yesterday?s US strategy before the market the sold off to hit our first profit target.

Strategy Overnight, the BOJ have intervened on a unilateral basis in the currency markets with the Yen weakening by the most since the G7 earthquake joint intervention. Today will be important for further central bank decisions with the BOE and ECB rate announcements. The Trichet press conference is likely to produce large volatility with possible movement in both directions. We would like to see Trichet announce that the ECB will restart the use of their SMP programme to buy peripheral debt which would certainly be very bullish for the Euro. But on the other hand he may be dovish in response the need for the ECB to relax their recent tightening policy. It is unclear how the Euro may react to this as this could be perceived ironically as a positive for the Euro in that it would benefit the Eurozone peripheral economies. Unfortunately, the reality is that Trichet will confirm neither of these factors and so we remain negative on the Euro going into the press conference but remain alert to reverse strategy should any significant developments arise.

Alternative Scenario Trichet announcing the ECB are to restart the SMP programme will lead to a strong Euro rally and a break of resistance at 1.4331 will likely lead to an accelerated move up to test yesterday?s high at 1.4372.

US 10Y T-Note (Sep 11) INTRADAY

Review Yesterday?s upside was capped by our entry short and resistance level 127.120. At 15:30 we again tested the resistance area, reaching 127.100 before selling down to 126.270 by 18:45 BST. T-Notes failed to gain on new highs for 2011 after the strong rally on Tuesday and the day, on reflection, can be described as range bound. Better than expected Eurozone PMIs and a slightly better than expected ADP employment report helped keep pressure on T-Notes despite worrying concerns surrounding the Italian Premier and his relationship with his finance minister Tremonti. Even as the S&P 500 plunged lower to new records for 2011, T-Note volatility remained muted for the session.

Strategy The main event in Europe today will be the press conference from Trichet at 13:30 BST and any significant comments may also drive volatility in the US bond market. We also have Initial Jobless Claims which will be closely watched given no serious revision to the previous ADP yesterday and the up-coming Non Farm Payrolls tomorrow. Bullish equity traders are desperate for an improvement in economic outlook and up at these levels should there be any positive sentiment risk remains to the downside for Treasuries. However, our strategy is neutral today as we do not see a resolution in Europe with Italian shares Fiat and UniCredit already suspended this morning, thanks to excess volatility. We expect T-Notes to maintain their range and will look to enter short again at yesterday?s entry level 127.120.

Alternative Scenario Disappointing economic data and further European woes may break 127.120 creating new highs for the year in Treasuries.

Crude Oil (Sept 11) INTRADAY

Review Crude oil followed a range bound pattern yesterday morning before lifting slightly to hit our entry point short at $93.55 and then reversing in another strong sell off in a trend continuation move on the back of continued risk aversion across the markets. The sell off extended throughout the afternoon helped by some bearish DOE oil inventory numbers before eventually hitting our second profit target at $91.58 just after 5pm. From here oil prices bounced slightly to retrace back to $92 at the close to finish down 1.98% for the day.

Strategy The downtrend is very well established as we have seen five of the last six sessions with heavy losses. The oil price this morning dropped under the $91 handle meaning that prices are now $10 lower than the July high set eight session ago. The main target on the downside is the June low set at $89.61 and the level of the negative sentiment in the market place would make a test of this level very likely this week. Dollar strength over-night due to Japanese Government intervention has promoted the trend lower and we look for this to continue with a short entry at the pivot level at $92.30.

Alternative Scenario Positive comments from Trichet at todays? ECB press conference can lead to an improvement to investor sentiment that may allow risk assets to rally. This may lead to a break of resistance at $92.77 which should open the way for a further move higher to test resistance at yesterday?s high of $93.75.