In the European Framework post published on December 6th( http://www.77sigmatrading.com/morning-meeting/european-framework/) we defined the Macro environment we were trading in and using a cross assets correlation analysis we highlighted our trading hypothesis.
Since then, the Italian political situation took the stage, increasing the chance of a risk off trade in Europe.
Studing the DJ Euro Stoxx50 December Futures chart ($FESX_F)
The 2575 breakout will confirm our hypothesis, increasing the likelihood of a downward move that can drive the future to test the 2550 first and 2530 as second short-term target.
The move in the equity will be driven mainly by the bund futures( 03-13 $Bund) testing and breaking out the 146.35 mark. The first breakout we highlighted for short-confirmation on the equity was 145.25 in March futures term.
The common currency is now flirting with the 1.2900$ mark, support will be found around 1.2840$ although after the sharp move from 1.3100$ the common currency looks like the quiter of the three.
Where we go from here?
The correct answer to this question is: the market will tell us, because we are traders not forecasters. The market response to the Italian news will be paramount to measure the risk that was already priced in, but we need to be really careful because the situation as said in the Italian political risk -update post could send the country into the ECB arms and the move could easily sparkle a “bear-squeeze”.
Managing the trade is the hardest part of a trader job… keep in mind.