Comprehensive FX and Futures Daily Commentary

FastBrokers Research Team from FastBrokersFX at 02/12/10

Daily Market Commentary


EUR/USD Dives Lower after Disappointing GDP Data and China

The EUR/USD is tumbling lower again with a large down-bar on the 4-hour. The Euro came under selling pressure after Germany’s Prelim GDP printed flat, or 2 basis points below analyst expectations. Additionally, French Prelim Service Payrolls, Italian Prelim GDP, EU Flash GDP and EU Industrial Production all disappointed. The only silver lining in today’s data set was 0.6% GDP growth in France. However, growth in France didn’t prove strong enough to counter overall weakness in the EU, highlighted by a 0.1% EU Flash GDP number. Also troubling is the huge pullback in Industrial Production (-1.7%). Such data reverts back to numbers we saw during the summer of 2009. Meanwhile, China surprised markets by announcing another 50 basis point rate hike in the required reserve ratio. China may be sending a message by tightening liquidity the day before the Chinese New Year, particularly that the government plans on being more fiscally responsible during the year of the tiger. Also, Chinese equity markets will be closed for a week, delaying a reaction from the SCI as the news sinks in. Investors are currently awaiting upcoming retail sales and consumer confidence data from the U.S. Considering the volatility we’ve witnessed in the FX markets thus far today, it wouldn’t be surprising if this data set yields considerable activity in the Dollar and U.S. equities. Strong U.S. economic data could send investors towards the Dollar amid economic uncertainty around the globe. Additionally, weak data releases could also benefit the Dollar as investors run for risk. Therefore, it will be interesting to see how the trading session plays out.
Technically speaking, the EUR/USD faces topside technical barriers in the form of multiple downtrend lines along with intraday, 2/8 and 2/11 highs. As for the downside, the EUR/USD has multiple uptrend lines serving as technical cushions along with 2/5 lows and the psychological 1.35 level should it be tested.

Present Price: 1.3578
Resistances: 1.3592, 1.3617, 1.3645, 1.3664, 1.3693, 1.3721
Supports: 1.3563, 1.3534, 1.3517, 1.3483, 1.3453, 1.3421
Psychological: February highs and lows, 1.35

GBP/USD Holds Above February Lows as Investors Await U.S. Data

The Cable sold off sharply from intraday highs and our 4th tier downtrend line after EU GDP data disappointed and China surprised markets by raising its required reserve ratio by another 50 basis points. Uncertainty and underperformance in the EU continues to rattle FX markets, resulting in another wave of Dollar strength. Additionally, China may be sending a message that it plans on pursuing a more conservative monetary policy during the year of the tiger by tightening liquidity a day before the Chinese New Year. Tighter monetary policy in China could have a considerable impact on global growth considering China has been an engine driving the economic recovery from the nadir of the Great Recession. Therefore, hawkish monetary policy actions can have a profound impact on the FX markets, as implied by a large leg up in the Dollar following China’s announcement. Meanwhile, investors are awaiting retail sales and consumer confidence data from the U.S. The UK has been quiet on the data front since the release of the BoE’s inflation report. Therefore, broad-based movements in the Dollar could continue to drive the Cable for the time being. Speaking of the BoE’s inflation report, it is encouraging that the Cable has been able to hold above its previous February lows considering the volatility in the Euro. After all, the BoE did downgrade its outlook for 2010 UK GDP and inflation growth. However, should today’s U.S. data prove to be positive for the Dollar the Cable may opt to retest its February lows. Meanwhile, the Cable is building up a solid base above its psychological 1.55 level.
Technically speaking, the Cable has multiple downtrend lines serving as technical barriers along with intraday and 2/10 highs. As for the downside, the Cable has multiple uptrend liens serving as technical cushions along with 2/2 lows and the psychological 1.55 level should it be tested.

Present Price: 1.5620
Resistances: 1.5621, 1.5640, 1.5659, 1.5684, 1.5717, 1.5744
Supports: 1.5593, 1.5572, 1.5558, 1.5533, 1.5502
Psychological: 1.55

USD/JPY Pops Following Strong U.S. Retail Sales Data

The USD/JPY is extending its intraday gains in reaction to stronger than expected U.S. retail sales data. The increase in U.S. consumption is a positive for the economy and improves the outlook for demand for Japanese made goods. The USD/JPY was already performing well today in reaction to disappointing EU GDP data and another hike in China’s required reserve ratio. The slowdown in the EU economy and tighter liquidity measures from China are both negative developments for the risk trade and resulted in a leg up in the Dollar. The USD/JPY opted to participate since the Dollar is being favored over the Yen due to stronger U.S. economic data, implying the Fed could tighten liquidity before the BoJ. Meanwhile, investors are awaiting Prelim UoM Consumer Sentiment data. The UoM data usually has a considerable impact on the Dollar, meaning the FX markets could remain volatile as the trading week comes to a close. Although U.S. markets will be closed on Monday for a bank holiday, Japan will release its Prelim GDP during Monday’s Asia trading session. Therefore the USD/JPY could be particularly volatile on Monday despite many investors taking the day off. Analysts are expecting Prelim GDP to print at 1.0%, compared to a downward revised 0.3% the last time around.
Technically speaking, we’ve shifted our trend lines to compensate for the USD/JPY’s upward movement over the past 24 hours. There are still multiple downtrend lines we can form to serve as technical barriers. Our 3rd tier could carry some extra weight since it runs through previous February highs. The USD/JPY is currently trading back above its psychological 90 level. However, we’ve seen how influential the 90 trading zone can be, meaning the USD/JPY could have trouble breaking free. As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with 2/3, 2/11, and 2/10 lows.

Present Price: 90.30
Resistances: 90.32, 90.46, 90.70, 90.70, 90.82, 90.94
Supports: 90.15, 89.99, 89.86, 89.72, 89.62., 89.50
Psychological: 90, February highs and lows

Gold Fluctuates as Investors Digest Data and News

Gold barely missed a retest of its psychological $1100/oz level yesterday and reversed course earlier today after EU GDP data disappointed investors. Gold’s selloff picked up steam after China made surprised markets by announcing it is raising its required reserve ratio again by 50 basis points. The combination of these two developments led investors away from the risk trade and towards the Dollar due to the deteriorating outlook for global economic growth, a negative occurrence for gold considering its negative correlation with the Greenback. However, gold has gained back some lost ground during the U.S. trading session after stronger than expected U.S. retail sales data resulted in a broad-based pullback in the Dollar. However, weakness in the Dollar has been limited thus far as analysts await Prelim UoM Consumer Sentiment data. That being said, investors should keep a sharp eye on the Dollar since today has proved to be a volatile session. A return to broad-based strength in the Dollar could drag gold lower due to correlative forces. Although the U.S. and China will be on holiday on Monday, Japan will release its Prelim GDP data. Hence, gold could remain active should Japan’s GDP numbers deviate from analyst estimates.
Technically speaking, gold has multiple uptrend lines serving as technical cushions along with intraday, 2/11 and 2/10 lows. As for the topside, gold faces multiple downtrend lines along with 2/11 and 1/28 highs. Furthermore, the psychological $1100/oz level could serve as a technical barrier should it be reached.

Present Price: $1085.55/oz
Resistances: $1087.38/oz, $1090.67/oz, $1093.95/ oz, $1097.75/oz, $1101.29/oz, $1104.07/oz
Supports: $1084.09/oz, $1080.80/oz, $1078.02/oz, $1073.95/oz, $1070.77/oz, $1069.17/oz
Psychological: $1075/oz, $1100/oz, February highs and lows

AUD/USD Sinks Following China News

The AUD/USD reversed sharply from its psychological .89 level after China shocked markets by increasing its required reserve ration by 50 basis points. By taking more hawkish monetary action a day before the Chinese New Year the government could be sending a message that it will pursue a more conservative monetary policy during the year of the tiger. The FX markets received China’s message loud and clear with the Dollar appreciating across the board. The Aussie also came under heavy selling pressure despite this week’s impressive employment data. Australia’s commodity-reliant economy is dependent upon demand from China. Hence, tighter liquidity in China could slow economic growth, thereby decreasing demand for Australia’s commodities and discouraging the RBA from raising rates by as much as it would like. Meanwhile, today’s EU data set disappointed with Prelim GDP data missing the mark. The disconcerting EU data added further downward pressure on the AUD/USD as the Dollar rallied in reaction. However, the Greenback has weakened a bit after U.S. retail sales surpassed analyst expectations. Hence, it will be interesting to see how the FX markets react to upcoming Prelim UoM Consumer Sentiment data. The data wire will be relatively quiet on Monday since the U.S. and China will be on holiday. Japan will release its Prelim GDP data during Monday’s Asia trading session, and if the numbers should deviate from analyst estimates this could yield a bit of volatility in the Dollar. Australia will enter the fray on Wednesday by releasing the RBA’s meeting minutes along with NAB Business Confidence data.
Technically speaking, the Aussie still has multiple downtrend lines serving as technical barriers along with 2/11, 1/29, and 1/28 highs. Furthermore, the psychological .89 level could serve as a technical barrier should it be retested. As for the downside, the AUD/USD as multiple uptrend lines serving as technical cushions along with intraday and 2/10 lows.

Price: .8825
Resistances: .8826, .8849, .8885, .8901, .8911, .8935
Supports: .8808, .8796, .8778, .8764, .8744
Psychological: .88, .89, February highs and lows.

S&P Futures Slump After Sluggish EU GDP and China Tightening

The S&P future are brushing aside stronger than expected retail sales and are trading down over 1% premarket in reaction the disappointing EU data and China’s decision to raise its required reserve ratio. Almost all Prelim GDP data printed negatively while EU Industrial Production tanked. The slowdown in EU economic growth is sending the Euro on another leg down with investor uncertainty on the rise. Meanwhile, China surprised markets by increasing its required reserve ratio again by 50 basis points. The timing of China’s decision is interesting considering it’s the day before New Year’s Eve. Hence, the Chinese government could be sending a message that it plans on being more conservative monetarily during the year of the tiger. Furthermore, China is attempting to seal equities from a negative impact since markets will be closed next week for the holiday. The Dollar is appreciating across the board in reaction to the combination of these two developments. The upturn in the Greenback is dragging the S&P futures lower due to their negative correlation. That being said investors should keep an eye on activity in the Dollar as the trading week comes to a close. Investors are currently awaiting Prelim UoM Consumer Sentiment data due shortly. UoM numbers have the potential to move markets substantially, so it will be interesting to see how equities and the Dollar react. U.S. and Chinese markets will be close on Monday, meaning activity could cool down as the trading week begins.
Technically speaking, the S&P futures have multiple downtrend lines serving as technical barriers along with 2/11, 2/1, and 2/2 highs. Additionally, the psychological 1075 and 1100 level could serve as resistances should they be tested. As for the downside, the S&P futures have light support in the form of previous February lows and the psychological 1050 level.

Price: 1064.75
Resistances: 1065, 1067.75, 1070, 1072.5, 1075.5
Supports: 1062.5, 1059.5, 1056, 1053, 1050.5
Psychological: February highs and lows, 1100, 1075, 1050







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