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Comprehensive FX and Futures Daily Research

FastBrokers Research Team from FastBrokersFX at 10/11/09


Daily Market Commentary

EUR/USD Settles above Thursday Lows Following French IP

The EUR/USD is settling above Thursday lows and our 3rd tier uptrend line after pulling back from Thursday highs. Much better than expected French Industrial Production data is helping buoy the Euro after investors decided to lock in profits earlier. The outperformance of French versus German econ data stems from the negatively mixed PMI numbers we received a couple weeks back. The underperformance of Germany’s economy is likely a key factor driving the ECB to keep liquidity flowing right now. However, the economic versatility of the EU region is keeping the EUR/USD near our 3rd tier downtrend line and September highs. The currency pair has logged four consecutive higher lows, a positive development technically. In fact, the EUR/USD peaked just past our 3rd tier downtrend line yesterday before buckling. This shows the EUR/USD is very close to a technical breakout since our 3rd tier runs through September highs. After September highs all the EUR/USD has to deal with is the psychological 1.50 level before experiencing accelerated near-term movements to the topside. As for the EUR/USD’s downside technicals the currency pair has multiple uptrend lines along with 10/7 and 10/5 lows serving as cushions.

Meanwhile, gold and the AUD/USD are developing new bases and could add onto earlier gains over the next week. However, it remains to be seen whether these strong pulls on the Dollar will experience a little more profit taking before setting a true bottom. That being said, investors should keep in mind that the breakout in gold and the AUD/USD doesn’t necessarily guarantee a similar topside breakout in the EUR/USD. The Aussie and EU economies are structured differently and the central banks will approach their exit strategies as they see fit. Though the EUR/USD’s topside technical barriers are wearing thin they exist nonetheless. Hence, a downward pressure is still hampering larger immediate-term gains. The Euro’s near-term performance ultimately depends on upcoming Q3 earnings results and next week’s econ data from both the EU and U.S. Investors need to see fundamental economic improvements in the EU and encouraging U.S. earnings before committing to a movement towards 1.50 and higher. Additionally, unexpected central bank comments could always jolt the FX markets psychologically. The first big econ release from the EU next week will be Tuesday’s German ZEW Economic Sentiment data. Trading should be light on Monday since the U.S. will be off on a banking holiday.

Present Price: 1.4745
Resistances: 1.4769, 1.4799, 1.4823, 1.4881, 1.4905, 1.4946
Supports: 1.4721, 1.4704, 1.4683, 1.4648, 1.4625, 1.4589, 1.4567
Psychological: September Highs, 1.50

GBP/USD Heads Below 1.60 After Failing to Cross 9/30 Highs

The Cable is moving lower today at a brisk pace after failing to eclipse 9/30 highs and our 4th tier downtrend line. The Cable has proceeded to pullback towards 10/7 lows as the FX markets experience a broad-based appreciation of the Dollar. The GBP/USD’s inability to climb past the aforementioned topside technical barriers leaves the door open for the currency pair to revert back to its near and medium-term downtrends. That being said, it will be important for the Cable to remain above 10/7 lows and our 1st tier uptrend line since bulls don’t want to break the streak of consecutive higher lows. Such a development could spell the beginning of a more protracted near-term selloff. Overall, the Cable has neglected to full participate in the breakout in gold and the AUD/USD and the battle between the bulls and bears lives to see another day. Therefore, investors should eye the aforementioned topside and downside technical levels over the next few trading sessions.

Volatility should pick up next week since Q3 earnings season will shift up a gear and Britain will start releasing some key economic indicators. It’s a bit disconcerting the Cable isn’t being buoyed by better than expected PPI Input data today. Rising prices should discourage the central bank from committing to future dovish monetary shocks. Perhaps investors prefer to wait for Tuesday’s CPI data and the tentative release of Britain’s Inflation Letter. If higher input prices translate to climbing consumer prices then this could help buoy the Pound. However, higher input prices and sluggish consumer prices would lead investors to believe that corporate profits are being pinched, implying the BoE would need to keep liquidity flowing to encourage lending. We maintain our negative outlook trend-wise on the Cable until our topside technials are eclipsed and we see a broad, positive fundamental change in British econ data. Furthermore, any uptrend in the Cable will continue to be hampered so long as the BoE holds its comparatively dovish monetary stance.

Present Price: 1.5941
Resistances: 1.5964, 1.5992, 1.6024, 1.6045, 1.6072, 1.6095, 1.6127
Supports: 1.5921. 1.5900, 1.5862, 1.5840, 1.5809, 1.5791, 1.5766
Psychological: 1.60

USD/JPY Pops Amid Broad-Based Dollar Strength

The USD/JPY is popping nicely above October lows after Core Machinery Orders data came in lighter than analyst expectations. Broad-based Dollar strength is only helping the USD/JPY head higher as we recognize pullbacks in both the GBP/USD and EUR/USD. Hence, investors are still a bit cautious despite the optimism resulting from the RBA’s monetary shock and consequent breakout in gold. The USD/JPY has responded by creating some distance between price and our important 1st tier uptrend line. Despite the potential for more immediate-term gains in the USD/JPY, the currency pair still faces our 2nd tier uptrend and downtrend lines along with the highly psychological 90 level. Therefore, investors should refrain from becoming too optimistic in reaction to today’s bounce. The longer-term downtrend line persists and a pop on oversold conditions is healthy. As for the downside, the USD/JPY only has our 1st tier uptrend and October lows separating the currency pair from a retest of key January lows.

The USD/JPY’s near-term path will rely upon the combination of important econ data next week, Q3 earnings reports and outlooks, and the BoJ’s monetary policy decision on Tuesday. Volatility should increase considerably before Tuesday’s meeting since great uncertainty surrounds the true monetary stance of the BoJ. Tuesday’s decision will be the first under the leadership of Minister Fujii. Though we don’t expect the BoJ to alter its monetary policy on Tuesday, investors will carefully analyze Fujii’s comments. Investors will look to see if Fujii reveals whether the BoJ is comfortable with the Yen appreciating further and if/when the central bank would intervene to defend exporters. However, we don’t expect too much clarity, only further haze and uncertainty. Meanwhile, Monday’s trading session should be quiet since U.S. markets will be closed for a banking holiday.

Present Price: 89.33
Resistances: 89.45, 89.68, 89.82, 89.97, 90.21, 90.43
Supports: 89.16, 88.91, 88.63, 88.43, 88.16, 88.00
Psychological: 90, 2009 and 2008 lows

Gold Consolidates Above Our 2nd Tier Uptrend Line

Gold is continuing its cool-down following the explosive breakout earlier this week. The precious metal has stabilized along our 2nd tier uptrend line and is presently trading just below the psychological $1050/oz level. We notice a similar dip in the AUD/USD and it seems the two are solid correlations right now. The reason for the consolidation in gold, besides oversold conditions, is the inability of the EUR/USD and GBP/USD to overcome our near-term technical barriers. While movements in the AUD/USD should continue to impact the precious metal, the continuation of gold’s rush will likely depend upon an accompanying breakout in the EUR/USD. Gold has been closely correlated with the EUR/USD throughout the year. Therefore, a topside breakout in the EUR/USD would drive gold to its next leg higher. As we mentioned, the EUR/USD does face a few immediate-term technical obstacles (refer to EUR/USD commentary). Therefore, the EUR/USD’s upward trajectory isn’t secure quite yet. Therefore, investors should eye the EUR/USD’s potential interaction with our topside technicals for the time being to gauge whether gold can leap past previous highs.

Meanwhile, econ data Q3 earnings will heat up around the globe next week following Monday’s U.S. banking holiday. Therefore, volatility in the FX markets should pick up, implying continued volatility in gold over the near-term. Gold’s breakout this week likely implies more accelerated gains over the near to medium-term since the highly psychological $1000/oz barrier is out of the picture. The near-term is about gold setting a new, lasting top from which to consolidate from. For the time being we are unable to create any reliable downtrend lines. We maintain our positive outlook on gold trend-wise due to the aforementioned analysis.

Present Price: $1046.95/oz
Resistances: $1049.24/oz, $1052.89/oz, $1058.54/oz, $1061.40/oz
Supports: $1045.63/oz, $102.63/oz, $1037.99/oz, $1035.54/oz.
Psychological: $1050/oz

The S&P Futures Contemplate Testing 2009 Highs

The S&P futures are continuing to slug it out with our 2nd tier downtrend line as previous 2009 highs hang within grasp. Present hesitation in the S&P is likely due to current strength in the Dollar, particularly against the Yen and Pound. Though today’s rally against the yet isn’t trend-setting, it’s sizable nonetheless. Meanwhile, the EUR/USD, AUD/USD, and gold are playing it cool via consolidation. The S&P’s near-term uptrend remains intact and equities could experience accelerated near-term gains should next week’s Q3 earnings and wave of econ data come in better than expected. However, investors should keep on their toes since FX markets are coming alive. The RBA’s rate hike sent a monetary shock and the decision signals the beginning of a deviation in policy concerning exit strategies. While the Dollar’s medium-term depreciation is becoming self-evident by the day, investor uncertainty should rise as central banks become proactive again. The Dollar’s downward trajectory is encouraging for the S&P’s medium-term outlook unless the negative correlation experiences a seismic shift.

Focus will return to economic fundamentals next week following Monday’s banking holiday. The tide of Q3 earnings will rise and overall corporate performance will begin to materialize. We’ll receive important econ data from the EU and Britain throughout the week and the BoJ will make its first monetary policy decision on Tuesday under the leadership of Minister Fujii. We will also receive U.S. retail sales data on Wednesday along with China’s Trade Balance. Therefore, an increase in volatility is likely and the S&P could take the opportunity to make a more concrete directional commitment. Positive results from the aforementioned economic and earnings headlines would help propel the S&P futures towards 1100.

Technically-speaking, the S&P futures face technical barriers in the form of 9/29, 9/17, and 9/24 highs along with our new 2nd tier downtrend line. As for the downside, the S&P futures have technical cushions in the form of 10/7 and 9/28 lows along with our 1st tier uptrend line and the psychological 1050 level.

Price: 1064
Resistances: 1066, 1070.5, 1075
Supports: 1060, 1054.25, 1049.75, 1045.5, 1041, 1036.25
Psychological: 2009 highs, 1050, 1075, 1100

Crude Sets Higher Lows and Climbs

Crude experienced a solid up-bar yesterday on rising volume, strengthening crude towards $72/bbl and our 3rd tier downtrend line. Crude has set consecutive higher lows, a positive development technically. Crude’s flirtation with our 3rd tier downtrend line is encouraged and we have created a 4th tier to compensate for recent upward movements. Crude’s strength comes despite weakness in the GBP/USD. The EUR/USD and gold are stabilizing, indicating the Dollar’s appreciation against the Pound may not accurately represent the broad-based state of the Greenback. Crude futures are finding strength in the knowledge that gold’s breakout likely implies a continued medium-term depreciation of the Dollar. Furthermore, weekly crude inventories came in light while the S&P futures are staring down previous 2009 highs. Hence, recent behavior of crude’s correlations creates a positive environment for the futures to accelerate to the topside should next week’s global econ data and Q3 earnings top analyst expectations.

Despite the positive technical developments in crude and its correlations, there remain a few obstacles to overcome to the topside. These include our 3rd and fresh 4th tier downtrend lines along with 9/17 highs and the psychological $75/bbl. As for the downside, crude has technical cushions in the form of our multiple uptrend lines, 10/9 and 10/8 lows, and the psychological $70/bbl level. The $70/bbl has a strong gravitational pull, meaning crude will likely need a considerable boost in buy-side activity to overcome its topside technical barriers. Next week is chalk full of important data releases and Q3 earnings, meaning volatility could increase across the marketplace following Monday’s banking holiday.

Price: $72.01/bbl
Resistances: $72.04/bbl, $72.32/bbl, $72.84/bbl, $73.18/bbl, $73.56/bbl, $74.33/bbl
Supports: $71.37/bbl, $70.93/bbl, $70.48/bbl, $69.79/bbl, $69.26/bbl
Psychological: $75/bbl, $70//bbl, $65/bbl

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