Originally posted by R.Cox.
Looking ahead to next week, most of the market’s attention and discussion is likely to center on the monetary policy meeting from the US Federal Reserve, which will come later in the US session on Wednesday. No change in rates is expected but the accompanying policy statement will likely be the main driver of directional sentiment for the later part of the week. This makes it risky to establish weekly trades in the S&P 500 early in the week but from a technical perspective, the recent stalling at the all-time highs at 1565 does suggest that there is clear risk to the downside unless we see some supportive comments after the FOMC rate decision.
In other areas, we will have some economic data from the Eurozone to watch, with the German and Eurozone ZEW surveys to be released on Tuesday, and the German IFO numbers on scheduled for Friday. This data (along with the increased discussions surrounding a bailout package for Cyprus) suggest that the EUR/USD could be a big mover this week, and for the daily trade ideas this information might be used as the basis for levels trades if we see some updated technical setups. Early in the week, we are likely to see some position squaring (an S&P negative) as traders look to prepare for the Federal Reserve policy statement. Any suggestion that current stimulus programs will have a solid date will be bearish for stocks and high yielding currencies.
The EUR/GBP continues to trade at elevated levels but the technical structure will start to look top heavy if we see a break below 0.86. If this support zone is removed, weekly PUTS in the EUR/GBP will be taken at 0.8620
on a short term corrective retrace, expecting a drop into the low 0.85s. Conversely, PUTS can be taken on an approach back to 0.8675, in anticipation of the downside test at 0.86.
The midweek FOMC meeting makes weekly trades in the S&P 500 unnecessarily risky, so we will look instead at the AUD/JPY, which has a high correlation with the stop market but might not be exposed to the same downside shocks if stock markets start to correct to the downside. Weekly CALLS in the AUD/JPY can be taken at 98.60
, which is a historical double bottom and unlikely to be breached on first attempt.