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Comprehensive FX and Futures Daily Commentary

FastBrokers Research Team from FastBrokersFX at 01/05/10


Daily Market Commentary

EUR/USD Consolidates Ahead of U.S. Data

The EUR/USD is consolidating below intraday highs and the psychological 1.45 level as investors await U.S. Pending Home Sales and Factory Orders. Yesterday’s ISM Manufacturing PMI printed positively, yielding weakness in the Dollar despite recent strength in reaction to encouraging U.S. data. Meanwhile, Germany’s Unemployment Change came in -9k below analyst expectations, an encouraging sign in regards to EU employment and future consumption. However, it seems today’s EU data isn’t having too much of an impact on the EUR/USD, although it could be providing the Euro with some relative strength as highlighted by a large pop in the EUR/GBP. It will be interesting to monitor the Dollar’s reaction to upcoming U.S. economic data. Although Pending Home Sales does carry some weight, a majority of trader’s are looking forward to tomorrow’s ADP Non-Farm Employment Change figure. A turnaround in U.S. unemployment sparked the Dollar’s December rally. Therefore, volatility could increase tomorrow as investors digest an important employment reading. The EU will also release Industrial New Orders tomorrow and investors are expecting a decline of -1.0%. However, as we stated, the market mover will likely be America’s ADP number.

Technically speaking, the EUR/USD still faces multiple downtrend lines along with the psychological 1.45 level, intraday, 12/23, and 12/18 highs. Hence, some challenging near-term topside technicals are in place due to the EUR/USD’s downturn in December. As for the downside, the EUR/USD has technical cushions in the form of our 1st and 2nd tier uptrend lines along with intraday and 1/04 and 12/22 lows. The EUR/USD is still trading well below our 3rd tier uptrend line that runs through July lows, meaning the currency pair could be in for more losses over the medium-term towards the psychological 1.40 should U.S. data continue to outperform.

Present Price: 1.4421
Resistances: 1.4430, 1.4454, 1.4478, 1.4509, 1.4540, 1.4576
Supports: 1.4403, 1.4371, 1.4348, 1.4323, 1.4303, 1.4267
Psychological: 1.45, 1.40, December and September Lows

GBP/USD Sinks Back Towards 1.60

The Cable is logging solid losses today despite yesterday’s encouraging data set. Today the UK did release a Construction PMI which was a bit weaker than expected. However, this data point alone doesn’t really explain why the Pound is exhibiting such a relative weakness, as highlighted by large gains in the EUR/GBP. Hence, there seems to be an external force driving the Cable lower outside of its Dollar correlation, and we can’t quite put our finger on it. It is possible investors are keeping the Pound in check around its psychological 1.60 level ahead of Thursday’s BoE meeting despite the fact the central bank is expected to keep its monetary policy as is until February’s meeting. Another possibility could be the crippling cold front moving through the UK at the moment which has brought much of Britain’s transportation to a halt. Whatever the reason, it will be interesting to see if the Cable can stabilize above 1.60 and 12/22 lows. Tomorrow could yield further volatility with the UK releasing its Halifax HPI and Services PMI data points. The Services PMI number will be in focus since the services industry comprises roughly 70% of the UK’s GDP. Also in focus will be the U.S. Non-Farm Employment Change figure. A turnaround in U.S. unemployment is what triggered the Dollar’s December rally. Therefore, tomorrow’s ADP number could prove to be a market mover.

Technically speaking, it seems the Cable’s psychological 1.60 level is serving as a technical cushion at the moment along with our 1st and 2nd tier uptrend lines. Furthermore, 12/22 and 12/30 lows could serve as solid technical supports should they be tested. As for the topside, the Cable faces multiple downtrend lines along with 1/04 and 12/16 highs. Therefore, the Cable has quite a few hefty obstacles to overcome to the topside considering the extent of December’s downturn.

Present Price: 1.6031
Resistances: 1.6058, 1.6085, 1.6107, 1.6141, 1.6163, 1.6195
Supports: 1.6024, 1.5995, 1.5973, 1.5928, 1.5901, 1.5876
Psychological: 1.60, December highs and lows

USD/JPY Drops on Overbought Conditions

The USD/JPY is tacking onto yesterday’s downward momentum despite broad-based strength in the Dollar along with weakness in gold. Hence, it seems the USD/JPY may be declining in the face of overbought conditions following December’s impressive rally. On the other hand, strength in both the Dollar and the Yen could be a sign of investors heading for safety. Regardless, the USD/JPY is still trading well above 12/24 lows and the psychological 90 level. Therefore, the USD/JPY’s uptrend is intact for the time being. However, the FX markets should start to shake up tomorrow with the release of Services PMI data from the UK along with the much anticipated U.S. Non-Farm Employment Change number. A turnaround in U.S. unemployment triggered the Dollar’s December rally. Therefore, it will be interesting to see how the USD/JPY reacts to tomorrow’s key employment figure should it print above or below analyst expectations. Japan will be quiet in the data-wire this week, likely leaving the USD/JPY’s movements in the hands of the West.

Technically speaking, the USD/JPY overcame some notable topside barriers during the month of December, most notably the psychological 90 level and a few heavily-weighted downtrend lines. Speaking of downtrend lines, our 2nd tier downtrend line could prove to be a key barrier since it runs through August ’09 highs. Hence, an eclipse of our 2nd tier could potentially yield a medium-term run towards the 97.50 area. Meanwhile, the USD/JPY faces multiple downtrend lines along with September highs and the psychological 95 zone. As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with 12/24 and 12/21 lows. Furthermore, the psychological 90 area could serve as a suitable cushion should it be tested.

Present Price: 91.55
Resistances: 91.83, 92.03, 92.26, 92.46, 92.76, 92.96
Supports: 91.46, 91.28, 91.11, 90.94, 90.78, 90.46
Psychological: 95, 90, January and September Highs

Gold Pulls Back with Dollar Strength

Gold is pulling back from intraday highs as we notice similar weakness in both the EUR/USD and AUD/USD. Hence, it seems gold’s negative correlation with the Dollar is in play. Investors are currently waiting U.S. Pending Home Sales and Factory Orders data points. We’ve yet to see how the Dollar’s correlation with play out in the beginning of 2010, so it will be interesting to see how the Greenback reacts to today’s data set. However, tomorrow’s ADP Non-Farm Employment Change figure should be more telling considering the Dollar’s December rally was triggered by a turnaround in U.S. employment. That being said, investors should keep a close eye on the Dollar’s reaction to tomorrow’s employment number since the FX markets could be in for some volatility. Meanwhile, gold is still trading above its highly psychological $1100/oz level and December lows are sitting comfortably beneath present levels. Therefore, gold has a few solid supports in place.

Technically speaking, gold has multiple uptrend lines serving as technical cushions along with 12/31, 12/30 and 12/22 lows. On an encouraging note, gold has set consecutive higher lows after bottoming out in December, and we are currently unable to form a noteworthy downtrend line. Therefore, gold could have some decent upward mobility should the Dollar weaken in reaction to upcoming U.S. data. Meanwhile, our 1st tier uptrend line could prove to be an important trend line since it runs through 10/28 lows, or the $1025/oz level. As for the topside, gold faces technical barriers in the form of 12/17 highs along with the psychological $1150/oz level.

Present Price: $1120.35/oz
Resistances: $1122.70/oz, $1128.09/oz, $1132.99/oz, $1137.41/oz, $1141.33/oz, $1145.40/oz
Supports: $1117.80/oz, $1113.99/oz, $1110.94/oz, $1106.54/oz, $1100.71/oz, $1097.15/oz
Psychological: $1100/oz, $1150/oz, December highs and lows

Crude Futures Hold Strong Above $80/bbl

The Crude futures are holding strong above their psychological $80/bbl level as cold fronts continue to hit the U.S. and UK. Harsh winter weather is increasing demand for heating oil, a positive catalyst for crude. Furthermore, tensions in the Middle-East along with encouraging manufacturing data from both the U.S. and China are contributing to crude’s strong performance. However, crude still faces 2009 highs and the psychological $80/bbl area proved to be a tough trading zone in the past. Meanwhile, investors are looking forward to tomorrow’s ADP Non-Farm Employment Change data. A turnaround in U.S. unemployment sparked December’s rally in equities and crude despite positive movements in the Dollar. Hence, it will be interesting to see how investors react to tomorrow’s ADP figure should it print above or below analyst expectations. That being said, crude’s correlation with the Dollar could be unreliable for the time being until we get a better idea of how the correlative forces play out.

Technically speaking, crude’s movement above our 3rd tier downtrend line could be a key development since our 3rd tier runs through November ’09 highs. Hence, crude could be in for a retest of 2009 highs in the near-future. That being said, the psychological $80/bbl area has proven to be a tricky trading zone in the past. Therefore, crude may need more positive fundamental developments to send the future beyond 2009 levels. As for the downside, crude has multiple uptrend lines serving as technical cushions along with 12/29 and 12/24 lows. Additionally, the psychological $80/bbl level may now serve as a cushion should it be retested.

Price: $81.68/bbl
Resistances: $81.81/bbl, $82.26/bbl, $82.75/bbl, $83.18/bbl
Supports: $81.29/bbl, $80.71/bbl, $80.35/bbl, $79.93/bbl, $79.23/bbl, $78.48/bbl
Psychological: $80/bbl, $75/bbl, 2009 highs

S&P Futures Move Sideways as Investor Digest Pending Home Sales

The S&P futures are moving sideways after finishing Monday’s session strong in reaction to a stronger than expected ISM Manufacturing PMI figure. However, today’s Pending Home Sales release could crash the party since they registered an eye-opening -16% decline, far below analyst expectations of a -2.3% reading. On an encouraging note, Factory Orders provided a silver lining by printing 6 basis points above analyst expectations at 1.1%. Hence, this week’s data sends a message that demand and manufacturing activity are picking up. On the other hand, the Pending Home Sales figure is staggering and could dominate today’s conversation among traders. That being said, attention is still focused on tomorrow’s ADP Non-Farm Employment Change report. A turnaround in U.S. employment data sparked December’s rally. Therefore, tomorrow’s ADP release could prove to be a market maker. Meanwhile, investors should continue to monitor activity in the Dollar, particularly in reaction to tomorrow’s data. For the meantime, the S&P futures could be buoyed today despite the discouraging housing data since investors may opt to sell the Dollar, a positive catalyst for U.S. equities since they are negatively correlated.

Technically speaking, the S&P futures are riding along their medium-term uptrend as they look to create more separation from the highly psychological 1100 level. As for the topside, the S&P futures face technical barriers in the form of 2010 highs along with the psychological 1150 level should it be tested. As for the downside, the S&P futures have multiple uptrend lines serving as technical cushions along with the 12/31 lows and highly psychological 1100 level.

Price: 1128.00
Resistances: 1128.75, 1130.5
Supports: 1124.75, 1122.5, 1119.75, 1117, 1113.5
Psychological: 1100, 1150, 1075, 2010 Highs and December Lows

Disclaimer: FastBrokers' market commentary is provided for information purposes only and under no circumstances should be regarded neither as investment advice or as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained. All materials are property of Fast Trading services, LLC and unless otherwise indicated, any unauthorized reproduction is prohibited.

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