- James Comey opening written testimony, doesn’t really expose anything we didn’t already know or suspect. (need to watch this space)
- Yen strengthen on possible stimulus exit.
- Narrowing of polls ahead of UK Vote.
- Asia stocks drop before key Europe events.
- Decline in Australian Trade Balance 0.555 miss on expectations.
- Inventory Build and US Crude output increases
- Risks in the middle east increasing with Qatar political breakdown with neighboring countries.
Day ahead… (in order of importance)
- UK Election
- ECB Interest Rate decision.
- Euro GDP Q1 (overshadowed by the big interest rate meeting)
- US jobless claims
Strategy – Sterling, Euro and Eurostoxx50
As we begin super Thursday I am focusing on three main products. I am looking for both long and short entries on implied volatility based on different outcomes of the UK election and ECB interest rate decisions.
UK Election Strategy – Sterling
I am leaning towards a Tory majority house win as the majority off polls and recent smart money rally suggests so. Will play cautiously throughout the day waiting for clear sentimental change and trend. If an upset occurs i think a complete unwinding of recent long bets will see a rapid sell off in sterling.
- Long bias on a Tory majority win 326 seats needed for a majority win – Looking for a classic Entry long with a clear break above 13000 level.
- Short bias on a hung parliament – aggressive entry short scaling into downside momentum with two main targets in focus 1.2800, 1.2500.
- Short bias on a Labour upset – aggressive entry short scaling into downside momentum with two main targets in focus 1.2800, 1.2500.
Preferred Trade – Short Pound, upset on election results for best risk reward.
Long (markets are already pricing in a Tory majority so less risk reward on upside potential, short trade on an upset or hung parliament looks better)
Short (preferred outcome better RR, if the outcome was negative, far better risk reward with larger downside potential as everyone is positioned long expecting a Tory win)
ECB Interest rate decision – Euro, EuroStoxx50
Expected to be dovish as softening inflation outlook, however we have had increasingly strong data which saw ECB sources stating that we could see a rethink of the current QE program and future interest rate rises. In context I doubt we will see a rise in interest rates during today’s meeting however talk of the future rises will be brought into focus. So near term no rate hikes, future rate hikes and stimulus package rethink, depending on the weighting and emphasis on these factors will evidently show on asset pricing reaction over the course of the day. I am leaning towards a Short Euro Bias and Long Equity indices (this view could flip easily depending on the interest rate decision).
- Short Euro on dovish inflation rate cut forecast with no interest rate hike.
- Long Eurostoxx50 on soft inflation outlook and no rate hike.
- Inverse is also true if the naritive switch to hawkish rate hike talk and a raise of inflation and hawkish talks in a more aggressive cut of the current stimulus package.
Preferred Trade – Short for Euro and Long Eurostoxx, looking for dovish tone out of ECB meeting for best risk reward.
Long Euro (if we can reach the bottom of the range, i am liking the long if the hawkish view takes focus)
Short Euro (better short in play if the ECB stay dovish on rate hikes and increased stimulus)
Eurostoxx Long – Dovis ECB increase of stimulus or extension of stimulus, no rate hike.