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Comprehensive FX and Futures Commentary

FastBrokers Research Team from FastBrokersFX at 12/22/09


Daily Market Commentary

EUR/USD Battles for a Base

The EUR/USD is fighting to consolidate above Friday lows with the intention of a building a new base following last week’s heavy pullback. The EU’s GfK Consumer Confidence data printed roughly 10% below analyst expectations earlier in the session, sighting consumer concern over rising energy prices and high unemployment. Today’s setback in consumer confidence marks the 3rd straight drop from September highs. However, it remains to be seen whether the downturn in consumer confidence is a symptom of a slow recovery or the beginning for a more lasting contraction. While today’s weak GfK number would presumably result in further EUR/USD losses, the currency pair is holding up relatively well since U.S. Final GDP just printed 6 basis points below analyst expectations. Should U.S. Existing Home Sales also disappoint, then we may witness a broad-based pullback in the Dollar as confidence surrounding America’s economic recovery takes a bit of a hit. The EU will enter the data wire again tomorrow with the release of French Consumer Spending. However, investors will likely be focused on the BoE’s monetary policy minutes followed by U.S. New Home Sales and Personal Spending. That being said, we could witness some volatility in the FX markets due to a combination of key data releases and lower volume as investors take off for Christmas vacation.

Technically speaking, we’ve readjusted our downtrend lines to compensate for the EUR/USD’s most recent pullback. As we mentioned previously, if the currency pair doesn’t pop back above our 2nd tier uptrend line, we could be witnessing a technically significant reversal since our 2nd tier runs through July lows. Hence, the EUR/USD could be in the midst of a more protracted downturn towards the psychological 1.40 level. As for the topside, the EUR/USD faces multiple downtrend lines along with technical barriers in the form of the psychological 1.45 level and 12/16 highs.

Present Price: 1.4303
Resistances: 1.4316, 1.4335, 1.4365, 1.4386, 1.4412, 1.4430
Supports: 1.4286, 1.4266, 1.4249, 1.4232, 1.4217, 1.4205, 1.4187
Psychological: 1.45, 1.40, October Lows

GBP/USD Drops Beneath 1.60

The Cable has dropped below our 2nd tier uptrend line and the psychological 1.60 level as the Dollar strengthens across the board. We recognize solid gains in the USD/JPY coupled with weakness in the gold, indicating investors continue to favor the Greenback in light of America’s economic recovery picking up steam. The UK released Final GDP data which printed one basis point higher than Prelim, yet one basis point below analyst expectations. However, the more important data figure was Britain’s Current Account Balance, which came in much stronger than anticipated. Hence, it seems global demand for UK goods and services is improving, a positive signal for the economy. While some may expect relative strength in the Pound in reaction to healthy Current Account data, we’re witnessing exactly the opposite since it seems America’s recovery story is in the forefront right now. Furthermore, it may be deduced that part of the reason behind today’s narrowing in the Current Account Balance likely comes from recent weak UK consumption data. Meanwhile, investors will likely have their attention focused on Wednesday’s BoE monetary policy meeting minutes. Due to recent improvements in unemployment and prices, the BoE may deem it appropriate to exert a more hawkish tone in its monetary policy statement. Hence, volatility in the Cable could pick up a bit before Christmas as investors react to the BoE’s decision. For the time being, investors should monitor the Dollar’s broad-based reaction to upcoming Final GDP and Existing Home Sales from the U.S. since the Cable will likely correlate well with the Dollar until tomorrow’s BoE meeting.

Technically speaking, the Cable’s large pullback this month has sent the currency pair below some key technical levels. Hence, it’s possible the Cable could be entering a more protracted downturn. The Cable has now dropped below our 2nd tier uptrend line with our 1st tier uptrend waiting far below (Off Chart). That being said, the fact we are now using March lows, or the 1.40 area, to create uptrend lines gives investors an idea of the extent of the damage inflicted by the Cable’s December pullback. Meanwhile, it will be interesting to see if the Cable can stabilize today and stick around the psychological 1.60 level. If not, the Cable does have some technical supports in the form of September and October lows. As for the topside, the Cable faces multiple downtrend lines along with 12/18 and 12/16 highs.

Present Price: 1.5990
Resistances: 1.6005, 1.6023, 1.6045, 1.6071, 1.6096, 1.6132
Supports: 1.5972, 1.5948, 1.5917, 1.5899, 1.5875, 1.5845
Psychological: 1.60, 1.65, September and October lows

USD/JPY Pops Past our 4th Tier Downtrend Line

The USD/JPY has popped past our 4th tier downtrend line as the currency pair continues to log encouraging gains above the psychological 90 level. Investors snapped up the Yen after BoJ Shirakawa stated the central bank will keep its benchmark rate near zero until there is a considerable recovery in prices. The DPJ has stressed its disapproval of deflation, and it seems the BoJ is falling in line with the Finance Ministry’s desires. The concept of a very dovish monetary stance from the BoJ combined with an improving outlook for U.S. economic performance has led investors to favor the Dollar over the Yen. However, the USD/JPY is trading off of intraday highs right now after U.S. Final GDP printed 6 basis points below analyst expectations. Should today’s U.S. Existing Homes Sales data also disappoint, investors may be encouraged to lock in profits on the USD/JPY as investor confidence in the U.S. confidence takes a step back. On the other hand, impressive housing data may allow the USD/JPY to piece together further intraday gains. The U.S. will release more housing data tomorrow in the form of New Home Sales along with the release of Britain’s Monetary Policy Minutes. Hence, we may witness further volatility in the FX markets due to the combination of key econ data releases and lower volume as investors take off for Christmas vacation.

Technically speaking, the USD/JPY’s movement above our 4th tier downtrend line is an encouraging development since it runs through 8/13 levels, or the psychological 95 area. Meanwhile, the USD/JPY does face topside technical barriers in the form of our 5th tier downtrend line, 10/30 highs, and 10/26 highs. Furthermore, the psychological 90 area could still play a role considering how tough the trading zone has been to overcome in the past. As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with 12/21, 12/18, and 12/14 lows. Meanwhile, the psychological 90 level should serve as a technical cushion.

Present Price: 91.53
Resistances: 91.59, 91.71, 91.94, 92.04, 92.17, 92.35
Supports: 91.22, 91.05, 90.94, 90.76, 90.58, 90.36
Psychological: 90, December Highs

Gold Drops Below $1100/oz

Gold has dropped below the psychological $1100/oz level as the Dollar’s recent strength seems to finally be taking its toll on the precious metal due to their usual negative correlation. Gold’s bull run continues to unwind as investors lock in profits and shuttle money back into the Dollar. That being said, gold does have a few more near-term uptrend lines we can form. However, should our new 1st tier uptrend line give way, gold could potentially be in for a more protracted pullback towards the highly psychological $1000/oz level. Meanwhile, investors should monitor the ability of the EUR/USD and GBP/USD to consolidate and form new bases following their December downturns. Should the Dollar consolidate and top out, gold may hit bottom nearby. That being said, the EUR/USD and GBP/USD have both dropped beneath key uptrend lines in the past week, implying the Dollar could be in for more gains over the medium-term. Investors will now focus in on today’s release of U.S. Existing Home Sales followed by tomorrow’s New Home Sales. Additionally, the BoE will release its Monetary Policy Minutes. Hence, the FX markets could be in for more volatility before Christmas. Should upcoming data points exceed analyst expectations, investors may snap up the Dollar and continue to take profits in gold, and vice versa.

Technically speaking, gold has multiple uptrend lines serving as technical cushions along with 11/05 and 11/03 lows. As for the topside, gold faces topside technical barriers in the form of intraday, 12/21,12/15, and 12/7 highs along with the psychological $1100/oz and $1150/oz levels.

Present Price: $1093.10/oz
Resistances: $1096.47/oz, $1100.15/oz, $1105.05/oz, $1110.77/oz, $1115.27/oz, $1123.03/oz
Supports: $1088.30/oz, $1082.58/oz, $1079.61/oz, $1074.96/oz, $1070.53/oz, $1063.56/oz
Psychological: $1100/oz, $1075/oz, $1150/oz

Crude Futures Trade Back Below $75/bbl

Crude futures are trading back below their psychological $75/bbl level as the Dollar registers more broad-based gains today. Weakness in the Cable and strength in the USD/JPY is helping push crude futures lower as crude exhibits its negative correlation with the Greenback. Meanwhile, it looks like OPEC is keeping its production level unchanged, implying aggregate demand remains the primary driving force behind price. That being said, U.S. and UK Final GDP numbers printed below analyst expectations, a negative development for crude’s aggregate demand expectations. However, investors seem to be focused on today’s U.S. Existing Home Sales and tomorrow’s New Home Sales data releases. Since these data points don’t necessarily reflect demand for crude, it seems crude futures may move with the Dollar. Hence, investors should monitor activity in the major Dollar pairs and watch out for any movements below key supports. Positive housing data could result in another wave of Dollar strength, a negative catalyst for crude.

Technically speaking, crude futures have multiple uptrend lines serving as technical cushions along with 12/9 lows the psychological $70/bbl area. As for the topside, crude futures still face multiple downtrend lines along with 12/18 highs and the psychological $75/bbl level should it be retested.

Price: $73.45/bbl
Resistances: $73.83/bbl, $74.48/bbl, $74.99/bbl, $75.39/bbl, $75.71/bbl
Supports: $72.96/bbl, $72.45/bbl, $71.91/bbl, $71.30/bbl, $70.72/bbl
Psychological: $75/bbl, $70/bbl, December Lows

S&P Futures Hover Below 2009 Highs Ahead of Housing Data

The S&P futures are holding strong around previous 2009 highs despite Final GDP printing 6 basis points below analyst expectations. Meanwhile, investors are awaiting Existing Home Sales data to determine whether to lock-in profits on the Dollar or continue riding the Greenback higher. That being said, the Dollar has continued to strengthen across the board, yet the S&P futures are tacking on gains despite the Greenback’s strength. It will be interesting to see if this relationship persists since the Dollar has been negatively correlated with U.S. equities since the inception of the economic crisis. Regardless, investors should continue to monitor any further technically significant movements in the Dollar. Should the S&P futures exhibit more of a pronounced positive correlation with the Dollar, then key pullbacks in the EUR/USD and GBP/USD could serve as a buy signal for equities. However, the positive correlation is an interesting concept since a strengthening Dollar makes U.S. products and services less attractive as an export. Hence, further appreciation of the Dollar could result in a pullback in the U.S. Trade Balance as America exports less and consumes more foreign products. Therefore, extensive strength in the Dollar could end up having a negative impact on U.S. equities. Before we get ahead of ourselves, we will need to continue monitoring the relationship of the S&P futures and the Dollar as investors react to today’s Existing Home Sales and tomorrow’s New Home Sales data points. Additionally, the BoE will releases its Monetary Policy Minutes, a potential market move should the central bank alter its previous monetary policy stance.

Technically speaking, the S&P futures are still locked into their medium-term uptrend after setting consecutive higher lows (11/26, 12/8, 12/18). Furthermore, the futures have the highly psychological 1100 level serving as a technical cushion along with multiple uptrend lines. As for the topside, the S&P’s only foreseeable near-term technical barrier is previous 2009 highs.

Price: 1112.50
Resistances: 1114.5
Supports: 1109.75, 1107.25, 1104.25, 1102.25, 1098.25, 1095.5
Psychological: 1100, 1075, 2009 Highs and December Lows

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