Position flattening likely to dominate over the coming sessions.

Discussion in 'Market Commentary' started by SimonDenham, Jun 22, 2016.

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  1. SimonDenham

    SimonDenham Simon Denham CEO Mercor Index Staff Member

    The bookies and the markets have made their beliefs known on the Brexit issue and it hardly seems worth going down to vote!

    I listened to a very sensible conversation from a Brexit campaigner concerning the single market in which his belief was that no matter which way the vote went it would be unlikely that the UK would leave it simply from the view point that it would suit no one’s purposes for us to do so.

    Remain or Leave it is likely that the UK is so interwoven with the European marketplace that little would, in reality, change. Those shouting that the world would come to an end are simply not believable nor are the warnings that economic disaster or nirvana await either outcome.

    This does not mean that the markets will not have an immediate reflex action to whatever transpires. Dealing floors across the world are gearing up to be in place from Thursday afternoon to the small hours. If the vote is for exit then we can probably forecast that the markets might fall simply because everyone believes that this is the appropriate response but if the vote is for remain the question is a little more difficult as most markets are now within a few percent of the recent highs anyway. There may be a knee jerk relief rally but do not be surprised if the markets on the close of Friday are lower than the current prices no matter what the result as (is so often the case) most people will have positioned themselves for a particular result anyway.

    Economic Data

    Yesterday we saw the German ZEW current conditions index marginally rise to 54.5 from 53.1 the interesting point about this index is that it is a net number of positives versus negatives for the future. So to get a result of this magnitude shows that the numbers were probably something like 65% positive 10% negative 25% the same. Which is a solid vote on the state of the German economy.

    Today there is absolutely nothing of import out of Europe and only marginal numbers from the US this afternoon. But in reality we could be having the NFP release and the FOMC and ECB meetings today and they would be of little import. All eyes will be on the UK polls tomorrow.

    Indices

    FTSE

    The index broke through the 6230 level yesterday but then stalled at the highs close to 6300 before slipping back in the afternoon to close just 25 odd up at 6226. Today we are looking a little firmer again and are back at the level where we thought that the Remain camp was a done deal a few weeks ago.

    I continue to believe that whilst the majority would like to be out of the EU political camp they are unlikely to actually vote to do so when standing in the booth. The economic risks have been too graphically enumerated for people to really take the plunge.

    Support is at 6220/30, 6110/20, 5940/50

    Resistance is at 6280/90 and 6340/50

    DAX

    As with the FTSE the Dax is marginally higher today but I can imagine that there will be a bit of position lightening through the session. Longs will have been very happy to ride the move higher, shorts will have been slaughtered, but there is always the chance that the bookies are wrong so…. why take the risk?

    Support is at 9940/50, 9800/10, 9710/20 and 9605/15

    Resistance is 10130/40 and 10280/90

    Dow

    The Dow is back up at the pre sell off levels having, sensibly, not really joined in with the global panic over the UK vote. Historically we can look back at the Dow chart and not even really notice the minor drop and recovery… a bigger move occurred only the month before.

    Support is at 17670/80, 17600/10 then 17520/30
    Resistance is at 17855/65, 17995/05, 18050/60, 18215/25

    FX markets

    Euro

    The cross is at 1.1275 and is now pretty much in line with in line with the mid point of the last few months. As mentioned before 1.1000 to 1.1200 has been the steady state of the last year and whilst we are on a slow rally (since December) it is hard to get too confident that this is anything other than a return to the current values.

    Support is at 1.1180/90 and 1.1110/20 then 1.1050/60
    Resistance is 1.1370/80, 1.1460/70, 1.1590/00 then 1.1720/30


    Sterling

    Stirling has made it back to the 1.47 odd level. It is difficult to see us going much higher before Thursday evening as even when the vote was much more solidly in favour of Remain we did not get much above here and the rally of the last few days pettered out at the high 1.47’s as it did back in May.

    Support is at 1.4655/60, 1.4560/70, 1.4320/30 and 1.4250/60

    Resistance 1.4785/90, 1.4810/20

    Gold

    The move on the 16th is looking more and more like the blow out move that so often signals the end of a bull market. With equities looking serious undervalued versus virtually all other asset classes the argument for Gold (if the Brexit vote goes for remain) is getting weaker.

    Support is at 1270/75, 1252/54, 1240/42 1228/30 1216/18, 1204/06

    Resistance is 1286/88, 1294/96 and 1303/05 then 1315/17

    Oil

    Brexit events even impact oil and now we are back up above 50 bucks (having hit 47 last Thursday) we have seen little other than buying since.

    Clients seem in two minds about the black stuff with longs dominating for quite some time before sellers came in above the 50 dollar mark. We are seeing a slight tendency towards longs still (55% long strategies) and are seeing more buyers this morning.

    Support is at 50.40/50, 47.40/50, 46.60/70 and 45.35/45,
    Resistance is at 51.70/80 and 52.05/15
     

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