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Futures Trade Desk- Stair-Step/Elevator Trade

Client Note

Stair-Step/Elevator Trade

EU governments have reached a deal to ban Iranian oil imports, but as yet with no start date. Warnings were posted that this would escalate. Oil markets are spiking higher, as WTI tests 104.00 resistance. In response, bullion markets are testing overnight highs. Equities are weak. 

Take care with any open position at this time; global market momentum, trend and sentiment are not aligned, which will create volatility. Potential trade set-ups and signals will require near-term targets and tight trailing stop-losses, at least until volume levels increase. 

Bullion trade is dealing with 1625 and 30.00 Gold and Silver resistance which will be hard to break in one go. WTI Oil is holding 100.00 support. Regional equity indices held support, despite USD buying and EUR weakness in response to very weak Euro-zone Government bond auctions. 10-year US Treasury notes have massive support at 130.00, and with its inverse stock correlation will create major S&P 500 resistance at 1295.

Global markets are back to their opening price points, on extremely light volume, awaiting a raft of Tier-1 economic releases due this week. The stair-step higher in Asian and European trade followed by the elevator down (and vice-versa) as Wall Street opens is still firmly in place, especially on the days that S&P Futures struggle to find buyers. The really important aspect of this decades-old pattern is that now the dollar buying is on very light volume, and really only getting any momentum in US-based trade. 

The U.S. markets house the largest global equity and bond flow, the largest commodity activity, unmatched option and futures trade volume, but low currency volume in the U.S. session. The reason is the lack of global momentum to match the volume in other markets, due to the fact that after 11:00 ET the US is the only open regional market.

The stair-step/elevator move starts with the 06:00 ET London fixings on oil and gold, at the same time that LIBOR rates are set, which force Chicago Futures markets to re-align fair value on equity, commodity, and interest rate Futures. That starts the reversal in currency direction that had been set in overnight trade, which is then hard pressed to stop the initial momentum building into strong currency order flows.

The U.S. being the market leader in many areas really does not help currencies to easily find fair value especially on negative equity days, and most Asian and European positions need to be locked in before the 06:00 ET Elevator doors open. The stair-stepping starts again as the Asian equity markets really get going around 23:00 ET when the Japanese afternoon session gets underway.



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