Weekly Trading Notes: Greece back at the forefront of investor concerns


  • Greece is becoming a concern for investors again. The wrangling over its economic reform proposals continue in the Eurozone for the  negotiations over the payment over €7.2bn of bailout funds. Greece owes the IMF €195m on 1st May and then €747m on 12th May. The Eurogroup meeting on Friday 24th April in Riga could be crucial, although some Eurozone officials are not confident an agreement will be reached (notably German finance minister Schaeuble). The closer these negotiations get to the wire, the more volatile markets will become. The base case remains the traditional Eurozone muddling through technique, but that is not to say that markets will not be volatile in the run up. Greek bond yields continue to push higher (Greek 2 year yields 28%). The euro could also be impacted negatively.
  • Corporate earnings season in the US is a big driver of Wall Street, with the initial reaction being mixed, depending upon your preferred measure. According to Reuters, with 59 companies reported, 75% have beaten on earnings (above the 70% average for the past 4 quarters), but when the revenue line is not as impressive with 45% beating (versus an average of 58%).  Problems with revenue is that the dollar strength continues to drag on overseas income, in addition to a sluggish first quarter economic performance in the US. Outlook statements are also telling, with industrial giant Honeywell reducing its full year guidance due to fx. More than a quarter of the S&P 500 report this week so it could be a defining week.
  • The S&P 500 is struggling still and this could be a feature throughout earnings season. In contrast, the signs are that the Eurozone is picking up (leaving aside a slight dip on the German ZEW today). The DAX is benefitting from this – but also there is a negative correlation between the strength of the euro (which remains under pressure) and the performance of the exporter heavy German DAX.
  • With the Fed now seemingly ready to act on data dependence, focus remains sharply on all US data. Data disappointed through most of last week, but turned a corner on Friday with inflation and Michigan Sentiment showing signs of improvement. It is interesting that on a day with no real US data announced since (and now until Wednesday’s existing homes data) the US dollar has been gathering momentum again. The housing data and flash manufacturing PMI will be key this week, as will durable goods orders as the retail sales continue to disappoint.
  • The Dollar Index has subsequently turned a corner near term leaving a low at 97.0 and is beginning to rise again. The real mover for the dollar is looming on the horizon, with the FOMC now only just over a week away. The FOMC is sure to drive price action next week, both before and after the event.
  • Commodity prices (oil and precious metals) have been holding up pretty well in recent sessions. The oil price (WTI) is finding support above its key breakout ($54.24), whilst gold is ranging between $1178/$1224. Gold has tended to not really react with the dollar in recent days, perhaps it is more finding a safe haven bid as concerns over the Eurozone/Greece negotiations drag.
  • I am still interested in the fact that the dollar rally has not been backed by a rise in Treasury yields. Yields have remained fairly stable recently, but the FOMC is sure to drive volatility. The US 10 year yield has been ranging for the past month between c. 1.800%/2.010.
  • In other events, Bank of England meeting minutes could give a clue as to the latest views of the growing number of hawks on the MPC and could drive sterling, whilst Thursday could be volatile with an array of flash manufacturing PMIs from key economies that could drive risk appetite.
  • Watch for: US economic data (including housing data and flash PMI)



EUR/USD – Rallies still seen as a chance to sell 

  • The pair continues to trade around the US data surprises with any signs of improvement in US economic data driving further weakness. There remains a tendency for rebounds in the euro to be pounced upon as a chance to sell.
  • The technical rally has rolled over at $1.0850 and is giving some near term sell signals. The deteriorating momentum indicators suggest that another lower high in the $1.0680/$1.0750 resistance band should be seen as a chance to sell for a test of $1.0570/$1.0620.
  • Watch for: US existing/new home sales, US flash Manufacturing PMI, German Ifo

GBP/USD – Bull recovery has lost momentum and rolled over suggesting renewed downside

  • The two leading parties (Conservatives and Labour) cannot be separated in the opinion polls in the run up to the election on 7th May. The potential outcome of the government is gradually leaning towards a Labour (austerity-lite) minority government propped up by the left-wing SNP (against austerity). The only benefit for the markets would be a pro-EU stance, whilst the cost would be a lack of deficit reduction. This would put pressure on sterling and is one of the reasons why a retest of $1.4230 is likely in the coming weeks.
  • Despite the resistance band around $1.5000 being broken on an intraday basis a shooting star negative candle has been followed up by some deteriorating momentum and the downside pressure is threatening again. I continue to favour selling into rallies, with $1.4900/$1.4930 looking a good selling area now.
  • Watch for: Bank of England MPC minutes, A clear sense of direction in the opinion polls, US housing data, US flash PMI

USD/JPY – Range trade continues between 118.30/120.85 (pivot around 119.40)

  • The weaker US data dragged Dollar/Yen lower in the wake of the suggestion from top officials in Japan that 105 is fair value on the yen. However the rebound since Friday suggests a movement on US data again. I continue to expect Dollar/Yen to remain a range play in the near to medium term.
  • The support at 118.30 remains intact and the pivot around 119.40 continues to play a role. Technically the pair is very much neutral (medium/long term) and unable to form any real near term direction for longer than a few days before reversals kick in. Play the extremes of the range 118.30/120.85.
  • Watch for: US housing data, flash PMIs for Japan and US

Gold – Rangebound between $1178/1224

  • The trade is moving still in a generally negative correlation to the dollar although the reaction has been more muted of recent days. Expect a continuation of signals to be taken from US economic data.
  • The support a $1178 remains intact and the momentum indicators are evermore neutral and rangebound. There is little real direction within the range, so either play the range or wait for a decisive breakout.
  • Watch for: A negative correlation to US dollar performance, and US economic data surprises

Indices – Earnings season holding back Wall Street, DAX negative correlation to euro

Wall Street has stuck rangebound by an uncertain start to earnings season, but a significant number of results this week means that it could be crucial to direction.

  • S&P 500 – Stuck under the range highs 2115/2120, but equally the support remains at 2040. The consolidation is being driven by an uncertain start to earnings season and if corporates start to disappoint then traders could see valuations as being a Cyclically adjusted price earnings ratio of c. 26 times this is a touch expensive.
  • DAX Xetra – The DAX moves strongly on a weaker euro and this continues to be a driver of the gains. QE continues to underpin the gains and a positive outlook. Key support band at 11,620 has held for now but this is very important now.
  • FTSE 100 – FTSE 100 looking to hold the gains into new high ground, helped higher by the support/recovery in oil and basic resources stocks. Be mindful that the UK General Election is likely to end up with a hung parliament which could still drive some profit-taking. Support near term is between 6900/6975. Key medium term support is now at 6694/6765.




Wednesday 22nd April

  • Australia – CPI
  • G7 meeting
  • UK – Bank of England meeting minutes
  • US – Existing Home Sales
  • US – Crude Oil Inventories

Thursday 23rd April

  • Japan – Flash Manufacturing PMI
  • China – Flash Manufacturing PMI
  • Eurozone – France Flash Manufacturing PMI
  • Eurozone – Germany Flash Manufacturing PMI
  • Eurozone – Flash Manufacturing PMI
  • US – Flash Manufacturing PMI
  • UK – New Home Sales
  • US – Weekly Jobless Claims

Friday 24th April

  • Eurozone – German Ifo Business Climate
  • Eurozone – Eurogroup meetings
  • US – Durable Goods Orders



Tuesday 28th April

  • UK – GDP (Q1 2015 Preliminary reading)
  • US – Consumer Confidence

Wednesday 29th April

  • Eurozone – Germany CPI (flash)
  • US – GDP (Q1 2015 Advance reading)
  • US – Crude Oil Inventories
  • US – FOMC monetary policy
  • New Zealand – RBNZ monetary policy

Thursday 30th April

  • Japan – BoJ monetary policy
  • Eurozone – CPI (flash)
  • Canada – GDP
  • US – Weekly Jobless Claims
  • US – Core Personal Consumption Expenditure

Friday 1st May

  • Japan – CPI
  • China – Manufacturing PMI
  • UK – Manufacturing PMI
  • US – ISM Manufacturing PMI
  • US – University of Michigan Consumer Sentiment (revised)


Leave a Reply

Your email address will not be published. Required fields are marked *