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Comprehensive FX and Futures Daily Commentary

FastBrokers Research Team from FastBrokersFX at 12/09/09


EUR/USD Retreats After S&P Cuts Spain’s Credit Rating

The EUR/USD is retreating from earlier gains after Standard & Poor’s announced it has lowered its credit outlook for Spain to negative. The EUR/USD is taking a slight hit from the news, and it will be interesting to see if intra-day losses accelerate as investors focus on Spain due to a lack of pertinent economic data. Meanwhile, the EUR/USD is balancing along our 2nd tier uptrend line as bulls look to keep the currency pair above November lows. Our 1st and 2nd tier uptrend lines may carry some weight since they run through September and August lows, respectfully. Hence, if the EUR/USD doesn’t solidify soon, the currency pair could be in for another wave of near-term selling pressure. That being said, the EUR/USD still does have our 1st and 2nd tier uptrend lines serving as technical cushions along with November lows. Should conditions deteriorate, the EUR/USD could find solid support in the form of its psychological 1.45 area and October lows. As for the topside, the EUR/USD is building near-term topside barriers as it weakens. The EUR/USD faces multiple downtrend lines along with 12/07 highs and the psychological 1.50 level. Therefore, it seems near-term topside techncials outweigh supports, meaning there remains a downward pressure on the EUR/USD. As a result, investors should monitor the behavior of gold and the S&P futures as investors await Thursday’s set of important economic events.

Although today is light on the economic data side, Thursday could have more than enough news to move the FX markets. Australia will begin with key employment data during the Asia trading session, followed by French Industrial Production, the BoE’s monetary policy statement, and U.S. Weekly Unemployment Claims along with its Trade Balance. Lastly, China will release its Industrial Production number during Friday’s Asia session. The FX markets have been rocked by psychological developments throughout the week, meaning investors will be looking for fundamental confirmation from Thursday’s data flow. If economic data prints poorly, then the EUR/USD may be subjected to addition near-term selling pressure. On the other hand, a wave of encouraging data points could help weaken the Dollar and allow the EUR/USD to consolidate while building a new base.

Present Price: 1.4707
Resistances: 1.4724, 1.4738, 1.4754, 1.4780, 1.4812, 1.4841
Supports: 1.4691, 1.4682, 1.4669, 1.4650, 1.4640, 1.4628, 1.4612
Psychological: 1.45, 1.50, November Lows

GBP/USD Declines with Broad-Based Dollar Strength

The Cable is moving lower with the EUR/USD as we continue to witness risk-averse money flows. The recent wave of negative psychology events continues after Standard & Poor’s announced it is lowering Spain’s credit rating outlook to negative. The negative outlook in Spain adds onto debt worries in Dubai and a downgrade of Greece’s national debt. Fears of government debt over-exposure has increased investor uncertainty once again, placing downward pressure on the Cable as investors snap up the Dollar for safety. In the UK, Chancellor announced there will be a one-time, 50% tax on bank employee bonus and the national tax rate will be raised in 2011 in an effort to reduce the nation’s swelling debt. The concept of higher taxes takes a bite out of expected consumption, a negative catalyst for the UK economy.

In addition to today’s negative psychological developments, Britain released a trade balance which was 200 million Pounds below analyst expectations. Hence, imports are outweighing exports, resulting in larger Pound outflows and consequently a weaker currency. However, investor focus likely remains on tomorrow’s BoE monetary policy meeting in conjunction with America’s Trade Balance in the afternoon. Although the BoE is expected to keep its benchmark rate and QE package unchanged, the central bank has been prone to induce monetary shocks in the past. Therefore, investors will be paying close attention to whether the BoE’s monetary policy stance has altered from the central bank’s previous meeting.

Technically speaking, the Cable has dipped below key November lows and is presently approaching our 2nd tier uptrend line. Hence, a downward pressure remains on the Cable. That being said, the currency pair does have our 1st and 2nd tier uptrend lines serving as technical cushions along with the psychological 1.60 area should it be tested. As for the topside, the Cable faces multiple downtrend lines due to recent weakness. Additionally, the Cable has 12/07 and 12/04 highs serving as technical barriers along with the psychological 1.65 level.

Present Price: 1.6222
Resistances: 1.6246, 1.6260, 1.6284, 1.6325, 1.6346, 1.6371
Supports: 1.6200, 1.6163, 1.6133, 1.6113, 1.6098, 1.6049
Psychological: 1.60, 1.65

USD/JPY Weakens in Reaction to Disappointing GDP Data

Yesterday, the DPJ announced the implementation of a $81 billion stimulus package to help buoy a beleagured Japanese economy. Although the DPJ’s new stimulus package should give a positive boost to the nation’s economy, analysts are already debating whether the $81 billion is enough to turn deflationary pressures. The Yen initially strengthened in reaction the DPJ’s announcement, highlighting investor skepticism in regards to the effectiveness of the stimulus package in regards to tempering deflation. In addition to the DPJ’s announcement, Japan reported that its Trade Balance widened more than expected, suggesting global demand for Japanese exports continues to recover.

However, the USD/JPY took a hit today after Japan’s Final GDP printed 5 basis points below analyst expectations (0.3% vs 0.8% expected). Japan’s disappointing GDP data has increased investor uncertainty in regards to the health of the global economy. Asian markets logged losses on the news and the USD/JPY sank back below 12/04 lows. Today’s discouraging Final GDP figure shows us why the DPJ was so eager to announce its stimulus package while leaning on the BoJ to increase liquidity.

Meanwhile, the USD/JPY is also being dragged down by risk-averse flows in the FX market as a whole. Investors are snapping up the Dollar and the Yen after S&P downgraded its credit outlook on Spain amidst debt problems in Dubai and Greece. Investors will now be looking forward to tomorrow’s BoE meeting followed by weekly Unemployment Claims and Trade Balance Data from the U.S. Furthermore, Yen investors will be focusing on Australia’s key employment data releases during Thursday’s Asia trading session and China’s Industrial Production figure the following morning. Japan is reliant on export demand from China and Australia, meaning positive data flows over the next 24-48 hours could help allay concerns about the state of Japan’s economy.

Technically speaking, the USD/JPY is trading back below its highly psychological 90 level in addition to multiple downtrend lines hanging overhead. Therefore, the currency pair still has its fair share of topside technicals to deal with before creating a more solid uptrend. That being said, longer-term downtrend forces remain. As for the downside, the USD/JPY is presently testing the patience of our 3rd and 4th tier uptrend lines along. However, the USD/JPY does have additional technical cushions waiting nearby in the form of 11/25 and 12/01 lows. Should conditions deteriorate further, the USD/JPY has our 1st and 2nd tier uptrend lines serving as supports along with November lows and the psychological 85 level.

Present Price: 87.84
Resistances: 88.07, 88.33, 88.48, 88.67, 88.86, 89.12
Supports: 87.82, 87.66, 87.49, 87.32, 87.11, 86.92
Psychological: 90, November Highs and Lows

Gold Continues Decline with Strengthening Dollar

Gold is continuing its recent downturn as the Dollar strengthens in reaction to more negative debt news. Standard & Poor’s downgraded Spain’s credit outlook to negative in conjunction with discouraging news concerning the debt loads of Dubai and Greece. The discouraging developments in regards to government debt have delivered a negative psychological blow to investors, resulting in strength in both the Dollar and Yen as investors head for safety. Additionally, gold has been on an incredible run since breaking past its psychological $1000/oz barrier. Therefore profit taking in gold is not too surprising and could end up being a positive development for gold’s uptrend should economic fundamentals print positively.

Investors will be receiving a key set of Aussie employment data during the Asia trading session tomorrow morning. Gold has been strongly correlated with the AUD/USD and EUR/USD, meaning investors should eye the Aussie’s reaction to tomorrow morning’s data releases. That being said, investors may also want to monitor the EUR/USD’s interaction with our approaching uptrend lines along with November lows should they be tested. Any noteworthy technical setbacks in the EUR/USD or AUD/USD could result in further downward pressure in gold.

Technicaly speaking, gold still has multiple uptrend lines serving as technical cushions along with intraday and 12/08 lows. However, should our 1st and 2nd tier uptrend lines give way, the currency pair may opt to retest its psychological $1100/oz level. The $1100/ozlevel could prove to be a strong psychological support should it be tested. As for the topside, we’re still not able to confidently place a downtrend line due to the lack of hisorical perspective. However, gold does face technical obstacles in the form of 12/08, 11/23, and 11/26 highs along with the psychological $1150/oz, $1175/oz and $1200/oz levels.

Present Price: $1138.10oz
Resistances: $1141.42/oz, $1145.50/oz, $1149.18/oz, $1153.67/oz, $1161.84/oz, $1165.11/oz
Supports: $1134.47/oz, $1129.98/oz, $1126.71/oz, $1123.03/oz, $1117.72/oz, $1113.22/oz
Psychological: $1100/oz, $1150/oz, $1175/oz, $1200/oz

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