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Comprehensive FX and Futures Daily Commentary

FastBrokers Research Team from FastBrokersFX at 12/21/09


Daily Market Commentary

EUR/USD Consolidates above Friday Lows

The EUR/USD is consolidating above Friday lows as the currency pair tries to form a new base during a trading session with little economic data. The EUR/USD has taken a considerable hit this month due to a combination of deteriorating conditions in some EU member states and strong economic data releases from the U.S. The concept that the Fed will begin reigning in its alternative liquidity measures has led to a bull run in the Dollar, dragging the EUR/USD below 1.45. The EUR/USD sank below our previous 1st tier uptrend line in the process, which runs through July lows. Hence, if the EUR/USD can’t make a strong rally above what is now our 2nd tier uptrend line soon, the currency pair is exposing itself to the possibility of a more extensive contraction towards the psychological 1.40 level. Meanwhile, the newswires will heat back up tomorrow as investors receive a bit of data before Christmas. The EU will kick off the session with its GfK Consumer Climate figure, followed by Final GDP and Existing Home Sales from the U.S. Any disappointing economic data from the U.S. could help the EUR/USD recover some of its December losses. However, more impressive data points could drag the currency pair lower as investors gain confidence in America’s economic recovery.

Technically speaking, we’ve readjusted our downtrend lines to compensate for the EUR/USD’s most recent pullback. As we mentioned previously, if the currency pair doesn’t pop back above our 2nd tier uptrend line we could be witnessing a technically significant reversal since our 2nd tier runs through July lows. Hence, the EUR/USD could be in the midst of a more protracted downturn. We’ve installed a new 1st tier uptrend line running through Friday’s base to give investors an idea of an immediate-term support level. As for the topside, the EUR/USD faces multiple downtrend lines along with technical barriers in the form of the psychological 1.45 level and 12/16 highs.

Present Price: 1.4356
Resistances: 1.4386, 1.4412, 1.4430, 1.4447, 1.4475, 1.4504
Supports: 1.4347, 1.4328, 1.4309, 1.4297, 1.4274, 1.4249, 1.4235
Psychological: 1.45, 1.40, 1.50, October Lows

GBP/USD Tests Friday lows

The Cable is trading off intraday highs and seems to be considering a retest of Friday lows despite present stability in the Dollar and gold. FX markets are quiet today due to the lack of economic data and the wind down towards Christmas. However, the Pound is losing some of its relative strength today, highlighted by a pop in the EUR/GBP. Perhaps investors are finally reacting to the weak UK consumption data released at the end of last week. The UK will enter the newswires again tomorrow with the release of its Current Account and Final GDP data. Better than expected data could help the Pound retain its recent strength and keep the Cable above its psychological 1.60 level. On the other hand, weaker than expected UK numbers combined with strong U.S. econ data could extend the Cable’s downturn as investors favor the Greenback. The U.S. will release Final GDP data of its own along with Existing Home Sales. Should U.S. econ data continue to top analyst expectations, then the FX markets may exhibit further broad-based Dollar strength. Meanwhile, investors will likely have their attention focused on Wednesday BoE meeting. Although the central bank is expected to keep its recent monetary policy intact to see how recent QE measures play out, it will be interesting to see if there is a slight shift in the BoE’s monetary stance. Due to recent improvements in unemployment and prices, the BoE may deem it appropriate to exert a more hawkish tone in its monetary policy statement. Hence, volatility in the Cable could pick up a bit before Christmas as investors react to the BoE’s decision.

Technically speaking, the Cable’s large pullback this month has sent the currency pair below some key technical levels. Hence, it’s possible the Cable could be entering a more protracted downturn should the currency pair not stage a recovery above our 4th tier uptrend line, which runs through October lows. Meanwhile, we’ve installed multiple uptrend lines running through March lows. The fact we are now using March lows, or the 1.40 area, to create uptrend lines gives investors an idea of the extent of the damage inflicted by the Cable’s December pullback. Meanwhile, the Cable does have some near-term technical supports in the form of our 2nd and 3rd tier uptrend lines along with the psychological 1.60 level and 9/24 lows. As for the topside, the Cable faces multiple downtrend lines along with 12/18 and 12/16 highs. Additionally, the psychological 1.65 area should serve as a technical barrier should it be tested.

Present Price: 1.6105
Resistances: 1.6131, 1.6157, 1.6182, 1.6196, 1.6221, 1.6252
Supports: 1.6090, 1.6073, 1.6051, 1.6033, 1.5999, 1.5972
Psychological: 1.60, 1.65, September and October lows

USD/JPY Consolidates above 90

The USD/JPY is consolidating psychological 90 level along with our 2nd and 3rd tier downtrend lines in reaction to stronger than expected Trade Balance data from Japan. The Trade balance data shows encouraging improvements in export demand, particular from Asian countries. Hence, it seems robust demand from China has managed to buoy Japanese exporters while demand from the West remains at discouraging levels. Although one may expect the USD/JPY to decline in reaction to today’s data with investors favoring the Yen, the currency pair has opted to hold strong above its highly psychological 90 level. The USD/JPY’s resilience likely has to do with a combination of an improvement in U.S. econ data coupled with the BoJ’s recent monetary policy statement. The BoJ stated that it is steadfast on fighting deflation, meaning it could maintain its dovish monetary policy for quite some time. The BoJ’s commitment to a loose monetary policy sent the USD/JPY beyond our 2nd and 3rd tier downtrend lines last week, which run through October highs. Hence, should the USD/JPY create some topside separation, the currency pair could piece together a solid near-term run towards 92. That being said, the USD/JPY still does face multiple downtrend lines along with previous December highs. Furthermore, the USD/JPY’s longer-term downtrend is still in play. Hence, the road higher could be rocky ahead should the currency pair’s positive momentum persist. Meanwhile, investors should keep an eye on broad-based activity in the Dollar since the EUR/USD and GBP/USD dropped below some key uptrend lines recently. Further deterioration in these currency pairs could yield strength in the USD/JPY.

Technically speaking, the USD/JPY faces topside technical barriers in the form of previous December highs along with our 4th and 5th tier downtrend lines. Furthermore, the psychological 90 area could still play a role considering how tough the trading zone has been to overcome in the past. As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with intraday, 12/14, and 12/09 lows. Meanwhile, the psychological 90 level could begin to work as a technical cushion.

Present Price: 90.53
Resistances: 90.58, 90.76, 90.94, 91.05, 91.22, 91.39
Supports: 90.36, 90.25, 90.10, 89.90, 89.75, 89.52
Psychological: 90, December Highs and Lows

Gold Holds Strong above $1100/oz

Gold has popped back above our 3rd tier uptrend line after a retest of the psychological $1100/oz level in reaction to the Fed’s more hawkish monetary policy statement last week. Gold’s resilience above $1100/oz is encouraging, yet not surprising considering its prevalence during November. Meanwhile, the Dollar is stabilizing a bit after an impressive bull run. The data wire is relatively quiet today and volume should decline as investors begin checking out for Christmas. However, the EUR/USD and GBP/USD have dropped below some key uptrend lines, meaning if these currency pairs don’t stage a run soon they may enter another wave of Dollar strength. Hence, investors should continue to monitor the interaction of major Dollar crosses with their respective supports since gold is negatively correlated to the Greenback. Meanwhile, economic data will pick back up tomorrow with the release of Final GDP from the UK and U.S. along with U.S. Existing Home Sales. Positive U.S. economic data continue yield further Dollar strength, a negative catalyst for gold. In addition to upcoming econ data releases, the BoE will announce its monetary policy decision on Wednesday. Hence, volatility could increase as the trading week progresses.

Technically speaking, gold still has multiple uptrend lines serving as technical cushions along with 12/11 and 12/18 lows. Furthermore, the psychological $1100/oz level should continue to serve as a reliable technical support should it be tested. As for the topside, 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: $1116.30oz
Resistances: $1119.35/oz, $1123.03/oz, $1128.34/oz, $1134.47/oz, $1141.42/oz, $1147.54/oz
Supports: $1114.45/oz, $1110.77/oz, $1105.05/oz, $1100.15/oz, $1096.47/oz, $1088.30/oz
Psychological: $1100/oz, $1150/oz, $1175/oz

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