Forex Signals: The S&P enjoyed a strong up day yesterday

S&P 500 (Sep 11) INTRADAY

Review The S&P enjoyed a strong up day yesterday closing more than 3% higher, however in the current climate large scale moves are the norm and this only lifts the index back to the middle of the large range seen over the last two weeks. A solid Asian session following some decent Chinese manufacturing numbers had equities on the front foot going into the European session. However, worse than expected German ZEW economic sentiment numbers reversed the positivity. Another bearish US cash open lead by the financials continued the pullback almost to the overnight lows. The momentum then turned again despite some disappointing US data as the FDIC reported that the ?problem? banks list had shrunk in Q2 2011 for the first time since 2006. Throughout the US cash session the S&P rallied over 40 points due to this news as well as on-going asset reallocation out of bonds and into equities and continued optimism that Bernanke on Friday will indicate the Fed are closer to implementing QE3.

Strategy The strong rally into the close yesterday lost its momentum through the Asian session as Moody?s downgraded Japanese debt and some worse than expend German IFO number coming in at 108.7, although the headline reading remains above the long term average of 101. Generally the market is still firmly focused on Friday?s session where we will see Bernanke's Jackson Hole statement as well as more US GDP and Consumer Confidence numbers. Today we have Durable Goods orders due at 13.30BST and this will be the main economic data release today. We continue to favour the upside as we feel there is scope to move closer towards 1200 ahead of Bernanke speech on Friday due to further asset reallocation.

Alternative Scenario Should negative sentiment return to the markets we may see the S&P 500 break below S1 at 1331.00 and return to test key support at 1118.50 .

EUR/USD INTRADAY

Review EUR/USD continues to remain within it?s summer range of 1.4696 to 1.3837, which has tightened to a movement between 1.4517 and 1.4054 in August despite the large correction we have seen across the board in equities as well as the German Bund seeing an all time record lows in yield. Risk on sentiment at the European Open saw EUR/ USD move higher, climbing further despite disappointing German ZEW data. As equities pulled back into the US session, the EUR/USD followed suit before then moving 50 pips higher into the US close after the FDIC announced the ?problem? bank list had shrunk in Q2 2011 for the first time since 2006.

Strategy Our entry long this morning worked very well with the Euro weakening following the worse than expected German IFO number at 9am. This dipped the market to our entry point before then rallying nearly 100pips. We are seeing a pattern this week where the Euro seems to be ignoring poor economic data and continuing to make gains against the USD. Although conditions are choppy at times we are keen to continue this theme and expect the Euro to stay on the front foot as the market prices in the Fed moving closer to-wards QE3.

Alternative Scenario Any indication that the US are not ready for QE3 or any negative developments in the Eurozone may generate a retracement and a break below 1.4377 may lead to a test of support at 1.4347.

US 10Y T-Note (Sep 11) INTRADAY

Review Our strategy yesterday was to continue using the trend line support identified over the last two weeks, which entailed relatively higher risk, given that at the time of writing the support level was being test-ed to the downside. Further, during the European morning session risk looked to be returning to markets which had caught our EU strategy offside. However, after hitting our entry at 130.025 we pushed higher as German ZEW disappointed hitting our first target after a choppy session at 18:30 BST.

Strategy Instead of bouncing off our trend-line as support, T-Notes appear to be oscillating around it making a strategy based on technicals alone problematic. However, as Moody?s downgraded Japanese debt and worse than expend German IFO number came in at 108.7 this morning we see support for safe haven assets to continue in the medium term. The lack of direction in T-Notes this week can be seen by the sideways range adopted since Monday rather than the trending higher seen in recent weeks. As a result we will look to follow an entry long at yesterday?s support level, our previous entry of 130.025. We will still refer to the trend sup-port as we move around it but recognise that as we move sideways it?s value is diminished.

Alternative Scenario Today we have durable goods data at 13:30 BST and as we favour the upside a move back into risk may push T-Notes below this weeks range support 130.025.

Crude Oil (Oct 11) INTRADAY

Review Crude was highly correlated to equities for a lot of yesterday in a mixed session that ultimately resulted in further upside and a close at $85.44 up 1.21% for a third consecutive up day. A solid Asian session following some decent Chinese manufacturing numbers gave a lift to commodity prices going into the European open with crude prices hitting $86. However, worse than expected German ZEW economic sentiment numbers reversed the positivity and weakness continued into the US cash leading to a pullback to test Friday?s high at $83.55 pullback. The momentum then turned again despite some disappointing US data as the FDIC reported that the ?problem? banks list had shrunk in Q2 2011 for the first time since 2006 and Oil reversed $3 to again make new highs above $86.

Strategy The API inventory numbers overnight were mixed with a large draw down of over 3 mln barrels of Crude but an enormous build of over 6 mln barrels of gasoline. Crude prices were little moved and pulled lower along with stocks into the European open. The main factors governing direction are the slight improvement in risk appetite as traders continue to tentatively price in the Fed moving closer to QE3 in Bernanke's speech on Friday and the developments in Libya. We continue to favour the upside as we see Libyan crude supply taking at least 12 months to fully come back to market. The main focus this afternoon will be the DOE inventory numbers at 15.30BST. We have a long entry at $84.43 looking for the winning streak to continue.

Alternative Scenario Bearish inventory numbers or a reversal of risk appetite may lead to a retracement of some of this week?s gains and a break below $83.40 may lead to a further move to support at $82.01.