Lack of Macro Data Keeps Greece in Trader’s Focus 20-25.5

Weekly Binary Options briefing by Richard Cox

Risk sentiment was modestly higher into the close of last week but the overall themes were clear with safe haven assets seeing most of the buying activity.  Specifically, the US Dollar was the star performer, with weekly gains for the third consecutive period and an increase to its highest levels in 16 months.  This activity was mostly driven by negative news headlines out of the Eurozone which showed that markets are still unconvinced that the regional debt crisis is under control and on the path to resolution.

Early in the week, encouraging GDP data out of Germany and monetary policy easing in China brought some support to equity markets, but this quickly reversed as Greek citizens began making a run on private banks and Fitch downgraded the country’s long term credit rating later in the week.  Greece has still been unable to form a majority government and this is likely to be viewed negatively by markets going forward, as political cohesion will be needed to pass austerity measures to be in compliance with EU bailout requirements.  The main question traders should be asking at this stage is the extent to which market attention will be focused on these topics in the coming week.

Housing Data Unlikely to Provide Direction

            When determining trading direction for the coming week, traders must remain cognizant of the fact that there is little in the way of economic data and corporate releases to help guide market bias.  There will be some real estate data out of the US (Existing and New Home Sales on Tuesday and Wednesday), and this will be followed by Durable Goods Orders on Friday.  The market moving potential of these releases, however, is likely to be limited and short term in nature, which means that investors are likely to remain headline driven and focused primarily on any new developments in the Eurozone.

With this in mind, remain watchful of any suggestion that Greece is closer to being forced to leave the Eurozone.  This will likely increase uncertainty levels and bring sellers back into equity markets (and buyers back into Gold, defensive stocks, and the US Dollar).  It should be remembered, however, that we are nearing some extremely oversold levels in risk assets and any positive developments (for example, some evidence of political cohesion in Greece) could lead to some fairly significant rallies, as traders take profits and reverse previously established short positions. Volatility is likely to slow into the close of the week as traders prepare for the Memorial Day Holiday.

My Trading Recommendation in 50 Words

Oil prices have recently broken some significant support levels in the 92.60 region, which suggests a bearish bias in the shorter term and a test of the 88.20 Fibonacci level.  Long term trends are up, however, as we will enter into a 1 week call option here, targeting a break back above 95.