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Comprehensive FX and Futures Daily Commentary

FastBrokers Research Team from FastBrokersFX at 01/13/10


Daily Market Commentary

EUR/USD Breaks Past Previous January Highs

The EUR/USD is setting new 2010 highs while creating some space between present price and the psychological 1.45 level as we witness weakness in the Dollar across the board. This week’s improvement in Chinese Trade Balance data is likely the driving force behind a return to the risk trade, that and oversold conditions following the Dollar’s December rally. Furthermore, the U.S. Trade Balance data revealed an encouraging improvement in imports, sparking speculation that global consumption is on the rebound. Therefore, it wouldn’t be surprising to see solid U.S. Retail Sales data tomorrow. The question becomes whether the Dollar would rally or decline on such a development since the Greenback was strengthening with positive U.S. data last month. Meanwhile, investors are gearing up for the ECB’s monetary policy meeting tomorrow. Comments from ECB members since the previous policy meeting haven’t changed much. Therefore, it would be surprising to see the ECB keep its policy unchanged while exerting a bit more of a hawkish attitude during the press conference. Regardless, tomorrow’s events could have an impact on the FX markets as the wires begin to heat up for the first time this year.
Technically speaking, the EUR/USD’s movement beyond previous January highs is a positive development considering the currency pair has been consolidating around 1.45 for the last few trading sessions. Additionally, we recognize a breakout in the Cable along with upward movements in the Aussie and gold. Therefore, the EUR/USD’s correlations are all working in favor for the currency pair. However, the EUR/USD still does face our 3rd and 4th tier downtrend lines along with 12/16 and 12/14 highs. As for the downside, the EUR/USD has multiple uptrend lines serving as technical cushions along with 1/12 lows and the psychological 1.45 area.

Present Price: 1.4570
Resistances: 1.4573, 1.4596, 1.4634, 1.4666, 1.4687, 1.4720
Supports: 1.4538, 1.4520, 1.4499, 1.4474, 1.4454, 1.4408
Psychological: 1.45, December highs and January lows

GBP/USD Pops as Dollar Falls Across the Board

The Cable has broken through previous January highs as we witness weakness in the Dollar across the board. Strength in the Cable comes despite lighter than expected Manufacturing Production data which remained flat for the 2nd release in a row. However, investors should keep in mind that the UK’s economy is more serviced based, placing slightly less weight on today’s manufacturing data. That being said, data from the UK has been altogether solid the past couple of weeks and has allowed the Cable to post encouraging gains in the process. Meanwhile, investors are looking forward to tomorrow’s U.S. Retail Sales data. Considering this week’s U.S. Trade Balance data signaled an increase in imports, we could receive positive retail data tomorrow with a pickup in consumption. However, it remains to be seen whether an encouraging U.S. would release would have a positive or negative impact on the Cable. Investors should keep in mind that the Dollar strengthened in December in reaction to impressive U.S. economic data. Therefore, if tomorrow’s retail sales print positive, the Dollar may actually benefit as opposed to the risk trade. Also on the agenda for tomorrow is the ECB’s monetary policy meeting. Should the ECB alter its alternative liquidity measures or shift its monetary stance we could witness volatility across the board. Meanwhile, the UK should be relatively quiet on the wire, leaving the Cable’s movements up to the broad-based performance of the Dollar.
Technically speaking, the Cable’s rally beyond previous January highs is certainly a positive development. Furthermore, the Cable is creating some more breathing room between present price and the psychological 1.60 level in the process. However, the Cable still faces multiple downtrend lines along with 12/16 highs. As for the downside, the Cable has multiple uptrend lines serving as technical cushions along with 1/12 lows and the psychological 1.60 area.

Present Price: 1.6289
Resistances: 1.6318, 1.6340, 1.6360, 1.6379, 1.6407, 1.6440
Supports: 1.6238, 1.6201, 1.6184, 1.6151, 1.6125, 1.6088
Psychological: 1.60, 1.65, December highs and January lows

USD/JPY Consolidates after Hefty Selloff

The USD/JPY is consolidating above yesterday’s lows as investors take advantage of oversold conditions. Meanwhile, we notice the Dollar is moving in lockstep since the USD/JPY is exhibiting a negative correlation with the EUR/USD and GBP/USD. Japan has Core Machinery Orders on deck and investors are expecting growth of 0.3%. However, more attention will likely be paid to tomorrow’s U.S. Retail Sales data. This week’s U.S. Trade Balance data revealed an improvement in imports. Therefore, it is possible tomorrow’s retail sales data could impress. Such a development would be positive for Japan’s economy since it would imply demand for Japanese manufactured goods. For the time being investors should keep an eye on the Dollar’s other major crosses for any key direction movements since the Dollar correlation is in full effect.
Technically speaking, the USD/JPY has rebounded nicely above our 3rd tire uptrend line while avoiding a retest of the highly psychological 90 level. Furthermore, the USD/JPY is now trading back above 1/5 highs, a positive technical development for the currency pair. However, the USD/JPY does face multiple downtrend lines along with 12/23 and 1/11 highs. As for the downside, the USD/JPY still has multiple uptrend lines serving as technical cushions along with 1/12 and 12/21 lows. Additionally, the psychological 90 level could serve as a reliable support should it be tested.

Present Price: 91.39
Resistances: 91.45, 91.61, 91.88, 92.13, 92.30, 93.47
Supports: 91.22, 90.96, 90.80, 90.54, 90.24, 90.05
Psychological: 95, 90, January highs and lows

Gold Sinks Below $1150/oz Despite Dollar Weakness

Gold incurred sizable losses yesterday despite aggressive topside movements in both the Cable and EUR/USD. Gold’s positive correlation is a bit puzzling and could be signaling further Dollar strength to come. Meanwhile, all eyes are turning to tomorrow’s ECB meeting and the release of U.S. Retail Sales. These two events could yield volatility in the FX markets and gold would likely tag along for the ride. That being said, investors may want to disregard yesterday’s positive correlation with the Dollar. We expect gold to maintain a negative correlation with the Dollar until further notice. Hence, investors should monitor activity in the EUR/USD and Cable considering both currency pairs just broke out of their respective January highs.
Technically speaking, gold has multiple uptrend lines serving as technical cushions along with 1/13, 1/8, 1/5 lows. We recognize that gold has built a neckline along our 4th tier uptrend line. Hence, a movement below our 4th tier could result in a large step lower. Meanwhile, gold’s psychological $1150/oz area should continue to play a role for the near-term. As for the topside, gold faces technical barriers in the form of 1/7 and 11/18, 11/23, and 11/27 highs along with the psychological $1175/oz level.

Present Price: $1131.30/oz
Resistances: $1134.19, $1138.89/oz, $1141.39/oz, $1147.34/oz, $1153.61/oz, $1157.68/oz
Supports: $1130.43/oz, $1127.30/oz, $1124.48/oz, $1119.47/oz, $1114.45/oz, $1111.63/oz
Psychological: $1150/oz, January and December highs, January lows

Crude Futures Dive as Losses Accelerate

Losses in crude are accelerating today as the cold front in the Northeast dissipates and investors react to China’s tightening of liquidity. Cold weather around the globe was a driving force sending crude higher due to anticipated demand for heating oil. Crude’s downturn over the past 24-48 hours shows how large of an impact weather had on the price crude. Meanwhile, the Dollar is strengthening across the board while gold and the S&P futures head south. Hence, crude’s correlations are also working against the futures. Furthermore, the SCI dropped by over 3% today as Chinese investors reacted negatively to China’s measures to tightening liquidity in order to try and deflate asset bubbles. The concept that governmental authorities may temper growth in the world’s hottest economy is having a negative impact on the outlook for crude’s aggregate demand. In all, multiple factors are driving crude futures lower. Investors will now look ahead to today’s weekly Crude Inventories and tomorrow’s U.S. Retail Sales data. An inventory surplus could add to crude’s present downward momentum while a shortage could help stem intraday losses. Strong retail data could improve the outlook for demand and help create a new bottom for crude.
Technically speaking, crude futures have suddenly dropped below their highly psychological $80/bbl level, a negative development. We’ve readjusted our uptrend lines to compensate for today’s pullback while crude could also find support in 12/30 and 11/13 lows should they be tested. As for the topside, crude faces technical barriers in the form of 1/11 and 1/12 highs along with previous January highs should they be tested.

Price: $79.34/bbl
Resistances: $79.84/bbl, $80.45/bbl, $80.78/bbl, $81.19/bbl, $81.63/bbl
Supports: $78.80/bbl, $78.44/bbl, $78.06/bbl, $77.49/bbl, $77.10/bbl
Psychological: $80/bbl, $85/bbl, January highs and lows

S&P Futures Edge Lower as Google Picks Fight with China

The S&P futures are fighting to stay positive while drifting lower from intraday highs as investors react to Google’s confrontation with China. While Google’s issues and demands are serious, the situation will likely take a while to play out. Therefore, the negative impact from Google’s political confrontation with likely quiet down tomorrow before reigniting sometime in the unforeseeable future. Hence, investors may not want to read into the situation too deeply for the time being. Meanwhile, the SCI dropped by over 3% during the Asia trading session as Chinese investors react to this week’s tightening of liquidity. Should China tighten liquidity further, this could place a damper on the global economy since China has been the engine to recovery. In the meantime, investors are still eyeing tomorrow’s U.S. Retail Sales data. Tomorrow’s data release will give investors a good idea of how the Christmas shopping season fared. As a result, the retail data could have a considerable impact on equities should the numbers surprise in either direction. In addition to the U.S. Retail Sales numbers, the ECB will also have a monetary policy meeting. Although the ECB is expected to keep benchmark rate unchanged, it will be interesting to see if the central bank continues its more hawkish monetary stance. The EUR/USD and GBP/USD each broke out of January highs today, a positive sign technically. However, the major Dollar pairs may need fundamental confirmations before making a stronger commitment to the topside. Hence, investors should monitor the FX markets as upcoming news and data hit the wire. Any significant breakouts in the EUR/USD and GBP/USD could move the S&P futures due to correlative forces.
Technically speaking, still have multiple uptrend lines serving as technical cushions along with 1/12, 1/5, and 1/3 lows. Furthermore, the highly psychological 1100 level could serve as a reliable support should it be tested. As for the topside, the S&P futures face technical obstacles in the form of 11/10 highs and the psychological 1150 level.

Price: 1135
Resistances: 1137.75, 1140, 1143, 1148
Supports: 1132.75, 1130, 1127.25, 1124.5, 1119.75
Psychological: 1150, 1100, 2010 Highs and January Lows

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