Looks like the upward momentum in the equity markets will continue after we saw positive data from the US in yesterdays afternoon session. The initial jobless claims came in at 332k lower than the analysts expectations of 350k, this signals that growth is in fact improving in the US although not a leading indicator it is a good measure of the unemployment rate in the US. We saw an initial sell off on the back of these good figures and yet again we thought we might be seeing traders play the 'End of QE' sell-off but this sell off was short lived and the shallow dip was immediately bought. The $SPX traded as high as 1565 and the $DOW in new territory at 14550. As we have been saying all week this market is in very overbought territory and a correction is needed to neutralise the market however you can only trade what is in front of you and these markets want to keep moving higher. Today's trading day is known as 'Triple Witching' which means that contracts for stock futures, stock index options and stock options all expire on the same day. Triple witching days happen four times a year on the third Friday of March, June, September and December. It is regarded as an unusual trading day and markets can tend to active irrationally and make drastic moves, so it is best to keep trade sizes small and use tight stops. However, this morning we continue in RiskOn mode, the equity markets are opening up in the green this morning so expect continued upward momentum unless something drastic happens.
In terms of the FX markets we saw some interesting moves taking place yesterday in both the EURUSD and GBPUSD pairs. Cable led the charge breaking about the 1.50 handle and trading up at 1.51240 at the time of writing, this in turn gave a boost to the EURUSD and we saw the pair break above the 1.30 handle and trade as high as 1.30400 overnight. This drastic move was a direct result of what is know by traders as a short squeeze, this take place when a large percentage of the market have active short positions and orders to short a market in a predominant down trend. The market finds support at a particular level and bounces slightly, the stronger the bounce the more stops it trips and this causes the market to move in an explosive manor.
In terms of what we are looking out for in the FX market: We are looking to keep a close eye on the GBPUSD pair. The pair has been trending down very nicely over the past couple of months and it looks to have formed a bottom around the 1.48389 level, the GBP weakness is a direct result of the BOE's monetary policy to adapt their own style of QE to stimulate the economy obviously this has a negative effect on the GBP currency as it becomes devalued in relative terms against other currencies in this case the USD. We are looking for a pull back to the 1.5196-52 level to re-enter a short position targeting 1.42 in the long run.
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