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Comprehensive FX and Futures Daily Commentary

FastBrokers Research Team from FastBrokersFX at 12/15/09


EUR/USD Steps Down in Response to Hot U.S. PPI Data

The EUR/USD took another step down today after the U.S. printed a PPI figure 10 basis points hotter than analyst expectations. Investors also received strong pricing data from the UK today, leaving central banks open to tighten liquidity should the recovery in prices continue and unemployment decline. Meanwhile, the EUR/GBP is also experiencing a pullback, indicating a relative weakness in the Euro. The Euro’s weakness likely stems from a weaker than expected headline ZEW Economic Sentiment number. Hence, although the Euro is logging sizable losses against the Dollar today, the Pound is holding strong for the time being. In addition to today’s U.S. PPI release, America also printed a set of mixed data points. The Empire Index and TIC numbers both came well below expectations while Industrial Production and the Capacity Utilization Rate each printed strongly. Hence, investors received a mixed picture of U.S. production and manufacturing while foreign interest in U.S. assets waned. The mixed data points could help the EUR/USD and GBP/USD stabilize since the results don’t broadly support tighter monetary policy from the Fed.

That being said, the Fed will make its monetary policy decision tomorrow. While the central bank will likely keep its policy unchanged, investors will be paying close attention to Bernanke’s language to see whether there is a more hawkish tone in reaction to recent improvements in employment and consumption data. Any surprise from the Fed would naturally move currency movements since psychological forces have had considerable influence on the Dollar in the past. Additionally, the EU will release some key data tomorrow, including a wave of Flash PMIs along CPI data. Hence, volatility could remain at a heightened state for the next 24-48 hours.

Technically speaking, the EUR/USD is experiencing a discouraging setback today by dropping below our previous 1st tier uptrend line. What is now our 2nd tier runs through 8/17 lows, meaning a more protracted decline towards 1.40 could be in the works should the EUR/USD not make a concerted effort to regain lost ground today. Meanwhile, the psychological 1.45 are could prove to be a reliable support with October lows hanging nearby. We’ve initiated a new 1st tier uptrend line (off chart), which is resting at about the 1.44 level right now. As for the topside, the EUR/USD still faces multiple downtrend lines along with 12/14 and 12/9 highs.

Present Price: 1.4530
Resistances: 1.4541, 1.4556, 1.4573, 1.4588, 1.4600, 1.4617, 1.4634
Supports: 1.4528, 1.4519, 1.4501, 1.4483, 1.4467, 1.4444, 1.4412
Psychological: 1.45, 1.40, 1.50, October Lows

GBP/USD Holds Strong Following Positive Pricing Data

The Cable is holding strong around our 1st tier uptrend line after both CPI and RPI data points printed one basis point hotter than analyst expectations. Hence, the recovery in UK inflation appears on track. This should be reassuring to the BoE since prices are nearing its comfort level of 2% growth. U.S. PPI data printed 10 basis points hotter than anticipated, a positive development for the concept of a tighter monetary policy from the Fed. However, U.S. manufacturing and production data printed mixed, taking a bit of wind out of the Dollar’s sails. Mixed fundamental data from the U.S. is helping stabilize both the Cable and EUR/USD as gold stages a little rally. Meanwhile, the EUR/GBP has taken another step down, indicating a relative strength in the Pound likely stemming from encouraging UK CPI and RPI results. The UK will release some more data points tomorrow, most notably a new CCC figure. Should the UK’s CCC come in stronger than expected like the last release this could help add onto the Pound’s present relative strength. However, a discouraging CCC number could damage the argument from a tighter monetary policy from the BoE, yielding weakness in the Cable.

In addition to more key data from the UK and EU, the U.S. will release Building Permits along with its CPI data followed by the Fed’s announcement of its monetary policy decision. Although the Fed is likely to keep its monetary policy unchanged, investors will be paying close attention to the Fed’s wording to monitor whether the central bank takes a more hawkish stance in light of positive developments in U.S. unemployment and consumption data. That being said, any unexpected action from the Fed would likely yield noticeable volatility due to the psychological influence of central banks on the FX markets. Regardless, activity could pick up in the next 24-48 considering the wealth of data and news investors will be digesting.

Technically speaking, the Cable still still flirting with dangerous territory since our 2nd tier uptrend line runs through October lows. Hence, should our 2nd tier uptrend line give way, we could witness another sizable leg down towards the 1.58-1.60 area. Below our 2nd tier uptrend line the Cable does have our 1st tier uptrend line (off chart) serving as a technical cushion along with the psychological 1.60 level, September lows and October lows. As for the topside, the Cable still faces multiple downtrend lines along with 12/9 and 12/7 highs. Furthermore, the psychological 1.65 level could serve as a technical barrier should it be tested.

Present Price: 1.6218
Resistances: 1.6252, 1.6265, 1.6286, 1.6325, 1.6346, 1.6371
Supports: 1.6205, 1.6186, 1.6163, 1.6133, 1.6113, 1.6098
Psychological: 1.60, 1.65, September and October lows

USD/JPY’s Pop Falls Short of 12/11 Highs

The USD/JPY’s pop from Monday’s lows has fallen short of 12/11 highs and the currency pair is being negated by our 2nd tier downtrend line once more. Positive activity in the USD/JPY initially stemmed from positive pricing data from both the UK and U.S. An increase in prices yielded further speculation that the Fed may tighten its monetary stance a bit. However, today’s U.S. data set turned out mixed with manufacturing and production data sending a murky signal. Today’s mixed U.S. data has taken some energy out of the Dollar’s recent broad based rally and the Greenback is presently weakening across the board. However, weakness in the USD/JPY has been minimal thus far, and the currency pair remains within the confines of December highs and lows. Attention will now shift to tomorrow’s wealth of economic data along with the Fed’s monetary policy meeting. The EU will release its Flash PMI data set along with CPI while the UK prints its CCC figure. In addition to the Fed’s monetary policy decision, the U.S. will also release CPI and Building Permits. Since Japan will be sitting on the sidelines tomorrow, the USD/JPY will likely follow the path of the Dollar. Hence, investors should monitor activity in the EUR/USD and GBP/USD as investor react to the data stream.

Technically speaking, the USD/JPY is presently locked between our 2nd tier downtrend and 4th tier uptrend lines, a supportive environment for a continuation of the currency pair’s present trading range. As for the topside, the currency pair faces multiple downtrend lines along with the highly psychological 90 area, 12/11 highs, and 12/7 highs. As for the downside, the USD/JPY has built a comfort zone between present price and our uptrend lines. Additionally, the USD/JPY has 12/14, 12/8, and 12/9 lows serving as technical cushions.

Present Price: 89.47
Resistances: 89.78, 89.89, 90.01, 90.25, 90.39, 90.58
Supports: 89.35, 89.14, 88.99, 88.77, 88.60, 88.34
Psychological: 90, December Highs and Lows

Gold Stabilizes with Dollar

Gold has continued to avoid a retest of the psychological $1100/oz level, finding support above 12/11 lows and our 4th tier uptrend line. The precious metal is experiencing a bit of intraday strength after U.S. economic data printed mixed. Although PPI came in 10 basis points above analyst expectations, U.S. manufacturing and production data sent a mixed signal. Hence, investors are taking today as an opportunity to lock in gains on the Dollar. The EUR/USD, GBP/USD, and AUD/USD are all stabilizing from intraday lows, supporting today’s consolidation in gold. However, volatility could pick up tomorrow with more key data from the EU, UK, and U.S. along with the Fed’s monetary policy decision. Although the Fed is expected to keep its monetary policy unchanged, any slight shift in its monetary policy stance in response to recent unemployment and consumption data could yield Dollar strength and gold weakness. However, if the Fed downplays the recent upturn in economic data and affirms its past monetary policy, then we may witness a bounce in gold and weakness in the Dollar. Naturally, the abundance of fundamental economic data releases has the potential to move the market as well. Hence, investors should monitor activity in the FX markets as investors react to tomorrow’s events. That being said, the EUR/USD and Cable are flirting with some important uptrend lines. Any significant setbacks in these currency pairs could drag gold lower due to the precious metal’s negative correlation with the Dollar.

Technically speaking, gold has multiple uptrend lines serving as technical cushions along with 12/11, 12/9, 11/13, and 11/10 lows. Furthermore, the psychological $1100/oz level could serve as a reliable technical support should it be tested. As for the topside, we’ve placed a downtrend line on our chart, albeit a steep one. Additionally, gold faces topside technical barriers in the form of 12/11,12/9 and 12/7 highs along with the psychological $1150/oz and $1175/oz levels.

Present Price: $1121.60oz
Resistances: $1123.03/oz, $1128.34/oz, $1134.47/oz, $1141.42/oz, $1147.54/oz, $1152.85/oz
Supports: $1115.27/oz, $1110.77/oz, $1105.05/oz, $1100.15/oz, $1097.29/oz, $1088.30/oz
Psychological: $1100/oz, $1150/oz, $1175/oz

Crude Futures Pop Back Above $70/bbl

Crude futures have popped back above their psychological $70/bbl as the Dollar weakens slightly. We notice stability in the EUR/USD, GBP/USD, and AUD/USD after U.S. econ data printed mixed. Although PPI, Industrial Production, and Capacity Utilization came in above analyst expectations, both the Empire Index and TIC data points disappointed. Investors appear to be taking the mixed data results as an opportunity to lock-in Dollar profits while snapping up oversold crude futures. That being said, not much has changed technically nor fundamentally, turning investor focus to tomorrow’s wealth of economic data coupled with the Fed’s monetary policy decision. The EU’s Flash PMI data points could move crude as well as the UK’s CCC figure. An improvement in the EU’s Manufacturing PMIs and a decline in the UK’s CCC could imply an increase in aggregate demand for and consumption of crude. However, crude’s movements could depend on the Dollar’s reaction to tomorrow’s Fed meeting. Any large gains in the Dollar could yield further weakness in crude since it is a Dollar-denominated commodity. On the other hand, a pullback in the Dollar could help crude futures regain some of its hefty December losses.

Technically speaking, crude futures have our 1st and 2nd tier uptrend liens serving as technical cushions along with the psychological $70/bbl area, October lows, and September lows. As for the topside, crude futures still face multiple downtrend lines along with 12/10, 9/22, and 12/8 highs. Meanwhile, the psychological $70/bbl level could play a gravitational role as the trading session progresses.

Price: $70.69/bbl
Resistances: $70.94/bbl, $71.25/bbl, $71.55/bbl, $72.11/bbl, $72.59/bbl, $72.95/bbl
Supports: $70.38/bbl, $69.68/bbl, $69.26/bbl, $68.91/bbl, $68.54/bbl, $68.04/bbl
Psychological: $70/bbl, $65/bbl, $75/bbl, October and September Lows

S&P Futures Register Slight Losses with Mixed Data

The S&P futures are weakening a bit today after failing to challenge previous 2009 highs. The futures are continuing their recent path of relative inactivity compared to movements we witnessed during the Autumn. Investors are digesting today’s mixed U.S. economic data. While PPI printed 10 basis points hotter than analyst expectations, the Empire Index and TIC Long-Term Purchases data points registered disconcerting declines. On the other hand, Industrial Production and the Capacity Utilization Rate both printed stronger than anticipated. Today’s mixed data set is stabilizing the Dollar, yielding a slight weakness after the Greenback’s strong run since the beginning of December. A dip in the Dollar combined with a little pop in gold is normally a positive development for U.S. equities due to correlative forces, and will likely keep the S&P futures above our 3rd and 4th tier uptrend lines.

Meanwhile, investors will shift their focus to tomorrow’s news wire, beginning with EU Flash PMI data along followed by the UK’s Claimant Count Change. As the trading session progresses, investors will also receive the EU’s PMI data along with U.S. Building Permits and CPI. Last but not least, the Fed will announce its monetary policy decision. Although the Fed is likely to keep its monetary policy unchanged, investors will be honing in on the Fed’s statement to see whether it shifts its stance from a loose monetary policy for the foreseeable future. Any shift in the Fed’s monetary stance, particularly to the hawkish side, could yield further strength in the Dollar and weigh down on U.S. equities. On the other hand, if the Fed keeps its monetary policy intact and reassures investors of the continuance of its loose monetary policy despite recent improvements in unemployment and consumption data, then the Dollar could bounce and equities strengthen. That being said, investors may want to monitor activity in the FX markets as currencies react to tomorrow’s events. Any large movements in the Dollar could have an impact on the S&P futures.

Technically speaking, the S&P futures still have multiple uptrend lines serving as technical cushions along 12/11, 12/8, and 11/26 lows. Furthermore, the highly psychological 1100 level could continue to play a key role as it has for the past month. As for the topside, the S&P futures face technical barriers in the form of previous 2009 highs.

Price: 1110
Resistances: 1111, 1112.75, 1115.5, 1117.75, 1119.5
Supports: 1107.75, 1106, 1103.5, 1100, 1096
Psychological: 1100, 1075, 2009 Highs and December Lows

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