Forex Trading - Market Update

Equity Markets
Going into the today's market open, S&P futures indicated a -6 to -7 point opening (it bottomed at roughly -7 points today) and the markets had sold off substantially since the pop higher after the NFPs on Friday. It appeared to me to be a bear trap (it was) and the S&P closed at -5.05 pts today. Mondays have tended to be more negative than positive over the last couple of months. Even when they aren't, they are usually fairly predictable. Now we head into earnings season where things are a bit more unpredictable. Companies tend to underestimate their earnings so they can "beat" their estimates. While I think the earnings aren't going to be good, I'm not sure what the market reaction will be.

EUR/USD
Angela Merkel arrives in Greece tomorrow, so I expect the media to focus on the situation there. Separate from the actual negotiations, there should be a significant amount of social unrest which should attract attention from the media. The social unrest in and of itself may cause the Euro to depreciate and European Equity indices to drop. How much impact the social unrest will have on the markets depends on how much attention it gets from the media. If European equity indices and the Euro are already falling, the media is likely to take those declines and try to find a reason for them (cue heavy coverage of protests and additional declines in equities). Keep in mind that Draghi speaks early in the day (3:30 AM EST) and that he is excellent at jawboning.

- Spanish Bailout: Is this a "buy the rumor sell the news" scenerio? I think so. Though the trick to playing this situation correctly is buying the rumor at the correct point. Rajoy will try and hold out on asking for a bailout until after the Spanish elections on October 21st. Requesting a sovereign bailout from the ECB is not a popular move with the people. So because everyone knows that Rajoy will most likely hold off on requesting a bailout until the 21st, the EUR/USD has plenty of scope to the downside until then. I'll be looking to buy into major weakness 2-3 days before the Spanish elections (as market conditions allow) in anticipation of bailout rumors.

GBP/USD
The Pound has been really weak since the post-NFP sell off. The main driver appears to be weak PMI numbers from last week and rumors of additional monetary easing. In terms of economic data releases this week, there is very little except for tomorrow at 4:30 AM EST. (Manufacturing & industrial production and trade balance) These are fairly important items that will affect expectations about more stimulus. It's important to note that the possibility of these numbers being bad and leading to an increase in stimulus expectations may already be priced in. There's a possibility that bad numbers may cause a spike down followed by a move sideways/up.


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