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Comprehensive FX and Futures Daily Research

FastBrokers Research Team from FastBrokersFX at 10/18/09


Daily Market Commentary

EUR/USD Forms Double Top Below 1.50

The EUR/USD’s upswing continued yesterday, yet hit a will just beneath the highly psychological 1.50 level as anticipated. The EUR/USD failed to fully participate in the equity rally and has formed a double top with a pop in volume on a 4 hour down-bar. We notice similar weakness in gold while the EUR/GBP has been hit with huge losses over the past 24 hours. The best explanation for the Euro’s present weakness is overbought conditions combined with headwinds at 1.50. As we mentioned previously, 1.50 serves as the last noteworthy technical barrier separating the EUR/USD from accelerated near-term gains towards 1.55. On a positive note, the EUR/USD is still trading above September highs and has multiple uptrend lines to break its fall. Therefore, there are far fewer obstacles separating the EUR/USD from the topside than the downside. We’ve attached a few makeshift downtrend lines running through weekly highs to give investors an idea of immediate technical barriers separating present price from intraday highs and 1.50.

Meanwhile, Q3 earnings and U.S. data are ending the week on a sour note with BofA and GE reporting weaker than expected revenue figures. Furthermore, IBM is selling on the news despite reporting better than forecast. The S&P futures are trading off by nearly 1% in reaction after failing to test their own psychological 1100 level. Therefore, it seems the EUR/USD’s stronger positive correlations are facing psychological headwinds as well. Regardless, the currency pair made some very bullish moves earlier this week, and there is presently insufficient evidence to contradict this observation. On the other hand, the ECB is increasing its chatter concerning the importance of a stronger Dollar since EU exporters are having trouble shipping products with an appreciated Euro. Hence, if the Dollar were to continue its broad-based devaluation the ECB may be inclined to keep the gates of liquidity open for longer. However, we’re not at that point yet, so investors should keep their attention centered on technicals and fundamentals.

The EU will be relatively quiet on the data front until late next week, particularly when the union releases Flash PMI data numbers along with Ifo Business Climate data. Until then focus should remain on Q3 earnings and U.S. econ data along with China’s data flow on Wednesday. China has been an engine in the global economic recovery, so Wednesday’s GDP and Industrial Production data could make or break the current risk trade. We believe China’s data will meet or beat and should provide a positive catalyst to global markets. As for the time being, investors should keep an eye on U.S. equities and gold. Further weakness in the S&P futures could apply downward pressure on the EUR/USD until we get more data.

Present Price: 1.4878
Resistances: 1.4905, 1.4946, 1.4981, 1.5013, 1.5052
Supports: 1.4875, 1.4845, 1.4830, 1.4800, 1.4758, 1.4722
Psychological: 1.50

GBP/USD Consolidates after Impressive Breakout

The Cable pulled a rally out of left field yesterday and exploded for nearly 400 basis points since our previous commentary. The psychological 1.60 level ended up having a marginal impact and has been left in the dust. Once the Cable got above our previous 3rd tier uptrend line, now our 1st tier, the currency pair took off as the S&P futures rallied towards 1100. The GBP/USD’s surge comes with little data besides a decline in the CCC. In fact, CPI came in weaker than expected this week and could be a cause for concern for the BoE unless they expect prices to rise with an improvement in unemployment. We attribute the Pound’s breakout to a massive short squeeze and somewhat encouraging earnings from financials. Financial services comprise a large portion of Britain’s GDP, so an improvement in earnings bodes well for Britain’s overall economy and causes investors to speculate a pause in BoE QE. Either way, the evidence behind the Pound’s surge is inconclusive and the Sterling’s breakout caught us by surprise. We don’t like to be party crashers, but we’re not entirely sold on the longevity of the Cable’s new uptrend. However, the Cable’s breakout does give us another glimpse of the future when all central banks start to tighten liquidity. For the time being, we will need further confirmation fundamentally, technically, and psychologically.

Psychologically speaking, investors will receive a stream of public address from central bank heads to kick off next week, including Bernanke on Monday and King on Tuesday. We’ve seen how large of an impact King’s comments can have on the Pound, so we expect volatility to remain at a heightened state. On a cautionary note, it’s unknown how Governor King will address this week’s breakout in the Pound. If he were to alter his dovish monetary stance, then the GBP/USD’s near-term gains could really accelerate. However, we believe King will try to keep investors in check and tame gains in the Pound in order to keep British goods and services attractively priced for exportation. British econ data will be scattered throughout the week, yet fundamental focus will likely square on China’s important data flow on Wednesday. China has been at the forefront of the global economic recovery, so investors will be paying particularly close attention to China’s GDP and Industrial Production figures late Wednesday EST.

In terms of technicals, the Cable has a few medium-term barriers to overcome in order to make believers out of us. These include our new 4th tier downtrend trend line, the psychological 1.65 level, and 9/11 highs. Our 4th tier seems to be the most important of the three since a failure would imply a retest of September highs since it runs through 9/11. As for the downside, the Cable has clearly created a new comfort zone over the past 24 hours. The currency pair now has multiple uptrend lines, 9/21 lows, and the psychological 1.60 level working in its favor. Therefore, the Cable has placed itself in an opportune position to breakout into a more lasting uptrend should psychological and fundamentals fall into line.

Present Price: 1.6340
Resistances: 1.6342, 1.6372, 1.6395, 1.6413, 1.6446, 1.6470
Supports: 1.6305. 1.6271, 1.6246, 1.6205, 1.6167, 1.6130
Psychological: 1.65, 1.60, September highs

USD/JPY Buckles Following Solid Run

The USD/JPY is experiencing profit taking today after flying with U.S. equities and the Cable yesterday. The USD/JPY ignored the theme of a weaker Dollar, and instead opted to participate in the risk trade. Thursday’s combination of positive Q3 earnings and a drop in weekly U.S. Unemployment Claims gave investors confidence to put their money back into riskier investment vehicles while sending the S&P futures towards 1100. An improvement in U.S. unemployment implies an increase in consumption, thereby increasing demand for Japanese exports. However, Thursday’s risk trade is being undermined today by disappointing earnings from BofA and GE along with weaker than expected Prelim UoM Consumer Sentiment data. The USD/JPY’s rally has topped out at what is now our 1st tier downtrend line after shying away from a test of 9/23 highs. The currency pair still faces multiple downtrend lines along with 9/23 and 9/25 highs. Therefore, quite a few technical barriers remain before the USD/JPY can establish a more substantial uptrend.

On a positive note, the USD/JPY is trading comfortably above 90 and the psychological level may now work in the currency pair’s favor. Furthermore, the USD/JPY has set higher lows (10/7 and 10/14) while receiving encouraging buy-side volume during yesterday’s session. The USD/JPY has created a little more breathing room in the form of multiple uptrend lines after dangling over the edge only a week ago. Despite the improvements in the USD/JPY’s support system, the currency pair still has a lot to prove before to the topside due to the extent of its downturn. Our 2nd tier downtrend line would be a good place to start since it could extend the USD/JPY’s rally towards 93.

Meanwhile, the BoJ will kick off the week by releasing its monetary policy meeting minutes combined with tertiary industry activity data early Monday (late Sunday EST). Investors will also receive public addresses from Fed Chairman Bernanke and BoE Governor King along with key China data on Wednesday. Therefore, volatility should remain at a heightened level through next week while investors continue to digest Q3 results.

Present Price: 90.70
Resistances: 90.99, 91.27, 91.44, 91.62, 91.85, 92.17
Supports: 90.70, 90.40, 90.15, 89.94, 89.69, 89.37
Psychological: 90

Gold Consolidates around $1500/oz

Gold has bounced off our 2nd tier uptrend line and is presently consolidating around the psychological $1050/oz level as investors take profits in the EUR/USD, AUD/USD, and the S&P futures. Investors seem to be taking a breather ahead of public addresses from the RBA, Fed, and BoE along with BoJ minutes. Quotes from the central banks are bound to be FX movers since investors will be looking for their respective monetary stances. Meanwhile, gold continues to be more closely tied to the Euro and Aussie than the Pound and Yen. Yesterday reinforced this observation when gold contracted while the Pound and Yen surged. Therefore, investors should pay particularly close attention to activity in the EUR/USD and AUD/USD along with their major cross-pairs. Today’s Q3 earnings and U.S. econ data came in negatively mixed and are increasing investor uncertainty in regards to the rest of the earnings season. The negative development in earnings has put gold’s uptrend on pause.

Technically speaking, gold appears to be creating a top, yet it’s uncertain how lasting consolidation will be. We expect continued volatility in the FX markets next week, so investors should get a better idea of whether investors are willing to test $1075/oz or opt to lock in more profits. Gold’s longer-term bull trend is alive and well considering the historic breakout last week. Meanwhile, the $1050/oz zone should continue to serve as a psychological pull until the Euro or Aussie make a next noteworthy directional move. Gold has multiple uptrend lines serving as cushions along with 10/9 and 10/7 lows. However, a drop beneath our 1st tier uptrend line could result in a retracement towards September highs. Therefore, gold is stuck in an uncertain place right now. The precious metal’s impressive run supports the argument for further profit taking. However, gold would be inclined to participate to the topside should the Dollar experience another round of weakness against the Euro and Aussie. As for the topside, gold faces resistance in the form of 10/8 and 10/14 highs along with the psychological $1075/oz and $1100/oz levels.

Present Price: $1054/oz
Resistances: $1054.82/oz, $1058.54/oz, $1061.40/oz, $1065.15/oz, $1068.06/oz.
Supports: $1049.57/oz, $1046.40/oz, $1042.96/oz, $1039.01/oz, $1035.58/oz
Psychological: $1050/oz, $1075/oz, $1100/oz

The S&P Futures Recover From Earlier Losses, Eye 1100

The S&P futures are recovering from earlier losses after BofA and GE earnings disappointed analysts. In addition to negative earnings reports investors are also digesting weaker than expected Prelim UoM Consumer Sentiment data. TIC Long-Term purchases also came in slightly below expectations. The overall drop-off in long-term purchases is disconcerting and signals a lack of international interest in U.S. Treasuries. Therefore, we would not be surprised to see more reports mentioning the continued diversification of global reserves away from the Dollar. The TIC’s downtrend reinforces the negative sentiment towards the Dollar. However, this is good news for the S&P’s near-term outlook because a weaker Dollar makes U.S. equities cheaper and encourages international investment. On the other hand, it appears U.S. equities may continue to underperform emerging markets since America’s economic fundamentals are so mixed. Today’s negative Q3 earnings and econ data follow yesterday’s positive readings. IBM and Google surpassed estimates and we saw improvements in the Empire Index and Unemployment Claims. The mixed results are keeping cash on the sidelines since the drag in unemployment and diving Dollar are causing uncertainty concerning the sustainability of the recovery.

Meanwhile, the S&P futures are facing that hefty 1100 psychological level we talked about before. The EUR/USD and gold are battling their own demons at 1.50 and $1050/oz, respectively. Additionally, crude is approaching its psychological $80/bbl level. Therefore, although the markets are sending bull signals the S&P and most of its correlations are facing psychological barriers. While we’re still positive trend-wise on the S&P, we will have to see how upcoming earnings pan out and how the Dollar reacts next week to central bank statements along with key economic data from China on Wednesday. If China’s data meets or beats as we suspect, this could drive the S&P futures beyond 1100. However, any sign of a slowdown in China would undoubtedly deal a blow to global equity markets. We are also interested to see how EU PMI data prints on Friday. The S&P’s recent strength has been driven by a weak Dollar and investors shouldn’t forget that both the EU and Britain have shown signs of cooling. Any further cool down in econ data over the next week or two could shake confidence in the recovery.

Technically speaking, the topside hurdles are clearly intraday highs and the psychological 1100 level. As for the downside, there are several uptrends we can form while the 1075 and 1050 levels serve as a psychological cushions. The S&P futures continue to set higher lows and this creates layers of support for the future.

Price: 1085
Resistances: 1085, 1089, 1094, 1100
Supports: 1078.25, 1075, 1066.75, 1057.75
Psychological: 1100, 1075, 1050

Crude Consolidates after Key Gains

Crude finally busted through $75/bbl and previous 2009 highs after positive earnings and econ data, including a strong Empire Index and lighter than expected crude inventories. Weekly Unemployment Claims also came in lower than expected. The gradual improvement in unemployment is positive for aggregate demand and should help lift consumer sentiment over time. Even though the EUR/USD and gold didn’t participate, a huge breakout in the GBP/USD helped drive crude higher due to the prospect of higher demand from Britain. However, today’s earnings from BofA and GE disappointed and Prelim UoM Consumer Sentiment printed weak. Therefore, the economic recovery still has holes and crude is consolidating in reaction to the news.

Regardless of today’s profit taking, crude has made a very bullish move by separating itself further from what is now our 2nd tier downtrend line along with September highs. Yesterday’s breakout should result in further near-term gains along with a test of the psychological $80/bbl. Meanwhile, volatility should increase next week since investors will receive public addresses from the Fed, BoE and RBA. Additionally, China will release a key wave of econ data on Wednesday along with U.S. and British data throughout the week. The combination of these events should move the Dollar and determine whether the rapid, broad-based depreciation takes another step forward. The further the Dollar depreciates the higher crude climbs. Therefore, investors should keep a close eye on the major Dollar pairs, particularly the EUR/USD and GBP/USD.

Price: $77.30/bbl
Resistances: $77.54/bbl, $77.89/bbl, $78.15/bbl, $80/bbl
Supports: $77.05/bbl, $76.81/bbl, $76.35/bbl, $75.90/bbl, $74.92/bbl
Psychological: $80/bbl, $75/bbl

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