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Comprehensive FX and Futures Daily Research

FastBrokers Research Team from FastBrokersFX at 10/27/09


Daily Market Commentary

EUR/USD Drops Beneath 10/19 Lows

The EUR/USD skidded below its highly psychological 1.50 level yesterday in reaction to the selloff in U.S. equities. We didn’t receive much pertinent econ data or news from the EU on Monday, telling us weakness in the Euro was fueled by overbought conditions and the pullback in the S&P futures. The EU released its M3 Money Supply data today, and the figure came in 3 basis points below expectations at 1.8%. The rapid downturn in M3 since August 2008 highs is a cause for concern monetary policy wise since its leaves the ECB with less incentive to raise rates. In addition to today’s negative M3 release, America’s CB Consumer Confidence number came in well below analyst expectations. Today’s CB data further confirms that U.S. consumption is still in a funk since the previous UoM release also disappointed. Investors are turning towards the Dollar in reaction to the negative fundamental developments as well as analyst downgrades of several financial companies. We also see weakness in the Cable and Aussie as well as strength in the USD/JPY, reflecting broad-based strength of the Dollar. The Euro is getting hit a bit harder than the Pound since the ECB has been comparatively Dovish in its recent public addresses. However, present strength in the Dollar should provide a bit of comfort to ECB officials worried about the strong Euro’s potential impact on a recovering EU manufacturing base.

Meanwhile, investors should keep a sharp eye on the S&P futures since they have dipped below our important 1st tier uptrend line. Further separation beneath our 1st tier could ultimately imply a retracement towards October lows. Therefore, investors should take note of any immediate-term technical developments in the S&P futures since the EUR/USD is positively correlated. The data flow will only get heavier tomorrow with German Prelim CPI along with Durable Goods Orders and New Home Sales from the U.S. The U.S. DGO data will be closely watched by Euro traders since the EU economy relies heavily upon manufacturing driven by export demand. Therefore, it is reasonable to expect that volatility will pick up over the next 24-48 hours.

Technically speaking, the sharp movement below the psychological 1.50 level is a discouraging sign for bulls. However, there remain several uptrend lines we can form, meaning the EUR/USD has a few technical cushions to rely upon before investors can safely cry bear. As for the topside, the EUR/USD now has multiple uptrend lines bearing down on price and the psychological 1.50 level becomes a technical barrier once again. Overall, although the uptrend remains intact, investors should tread carefully since U.S. equities are facing headwinds.

Present Price: 1.4814
Resistances: 1.4819, 1.4844, 1.4863, 1.4890, 1.4925
Supports: 1.4783, 1.4764, 1.4727, 1.4700, 1.4671, 1.4638
Psychological: 1.50, 1.45

GBP/USD Holds Strong above our 2nd Tier Uptrend Line

The Cable has managed to hold up well above our 2nd tier uptrend line despite broad-based strength of the Dollar. Today’s CBI Realized Sales number came in above analyst expectations and is helping buoy the Pound after Friday’s disappointing Prelim GDP data. Today’s CBI data counters recent flat Retail Sales figures, improving investor outlook a bit as far as consumption is concerned. Investors should also keep in mind that before Friday’s shocking GDP number, Britain had released better than expected Services PMI and CCC data. Therefore, the picture may not be as bleak as what Friday made it appear to be. However, U.S. CB Consumer Confidence data is crashing the party since it came in over -10% below analyst expectations. U.S. equities have already taken a hit and the S&P futures are presently testing the patience of their near-term uptrend technicals. If tomorrow’s U.S. DGO and New Home Sales releases also disappoint and losses in the S&P accelerate, the Cable may have no choice but to participate due to their positive correlation. On the other hand, near-term uptrend technicals are still hanging on, so positive U.S. econ data over the next couple sessions could knock the Dollar’s downtrend back into place. Hence, investors should keep a wary eye on upcoming U.S. data and the reaction from equity markets.

Technically speaking, the Cable is suddenly facing four fresh downtrend lines and 1.65 is serving as a psychological barrier once again. The GBP/USD’s last run topped out beneath 9/11 highs, meaning the currency pair has its work cut out for it to the topside since a reversal into a longer downtrend isn’t out of the question. As for the downside, the Cable has managed to avoid a retest of 9/21 lows thus far. Our 2nd tier uptrend line should play an importance role in preventing such an occurrence. Meanwhile, though far away, the Cable still has our 1st tier uptrend line to fall back on along with the psychological 1.60 level and previous October lows should the situation deteriorate further. Therefore, the Cable’s uptrend is salvageable as long as near-term technical cushions hold up.

Present Price: 1.6319
Resistances: 1.6352, 1.6371, 1.6395, 1.6431, 1.6454, 1.6491
Supports: 1.6304, 1.6285, 1.6265, 1.6247, 1.6233, 1.6205
Psychological: 1.65, 1.60

USD/JPY Continues to Consolidates with an Upward Bias

The USD/JPY has continued its consolidation around 92 and has perked above our 2nd tier downtrend line in the process. However, the currency pair is having a little trouble breaking through our 3rd tier downtrend line after tapping it earlier today. Meanwhile, the USD/JPY’s topside run is reaching an important juncture with our 4th tier downtrend line and 9/21 highs nearby. Technically speaking, the USD/JPY’s potential encounter with our 3rd tier downtrend line is an important development since it runs through 8/28 highs. Our 3rd and 4th tier downtrend lines carry a heavier weight since they represent the USD/JPY’s ability to extend its present upward movement towards the psychological 95 level. That being said, the USD/JPY’s topside obstacles are wearing thin, and the probability of an accelerated near-term breakout is increasing. However, investors should keep in mind that a debilitating, long-term downtrend is still in effect. Hence, the potential to reverse into its downtrend remains a possibility. As for the downside, the USD/JPY’s recent run has created several technical cushions, including multiple uptrend lines along with 10/26, 10/23, 10/22, and 10/21 lows. Speaking of which, this set of higher lows is normally a positive technical sign trend-wise.

Meanwhile, volatility in FX markets should increase as the week progresses since the U.S. will be releasing more key economic data, including tomorrow’s DGO and New Home Sales data. The DGO number is of particular importance to export-reliant economies such as Japan. However, the USD/JPY’s ultimate focus will likely be on late Thursday/early Friday’s BoJ monetary policy decision. The BoJ has held a more hawkish monetary policy stance since the DPJ took power, and there’s little reason to expect this to change on Friday since the USD/JPY has created some breathing room between present price and 90. However, there’s a lot of data between now and the BoJ’s decision, and with the S&P futures reaching up 1st tier uptrend line the Dollar has the potential to realize further immediate-term gains. Therefore, investors should keep a close eye on the USD/JPY’s correlation with U.S. equities along with the S&P’s reaction to upcoming econ data.

Present Price: 92.08
Resistances: 92.18, 92.35, 92.57, 92.77, 92.93, 93.17
Supports: 91.91, 91.80, 91.70, 91.57, 91.41, 91.24
Psychological: 90

The S&P Futures Fight Back Above our 1st Tier Uptrend Line

The S&P futures are recovering from earlier losses after dipping below our important 1st tier uptrend line. Today’s slight bounce in the S&P futures comes despite a surprisingly negative CB Consumer Confidence release. Today’s CB data reflects the negative consumer sentiment portrayed by recent UoM numbers. Therefore, today’s slight strength in the S&P futures is likely due to a combination of oversold conditions as well as the recognized importance of present levels. We’ve highlighted our 1st tier uptrend line in previous commentaries since it runs through October lows. The fact our 1st tier has already been compromised once is a bit discouraging since it implies a potential retracement towards these October lows and the psychological 1000 level. However, our 1st tier uptrend line is still intact nonetheless, meaning the S&P’s uptrend can kick back in should techincals hold and tomorrow’s econ data registers better than today’s.

Tomorrow the U.S. will release DGO and New Home Sales data. DGO data is heavily weighted since it is a primary economic indicator in regards to the health of U.S. consumption. Unfortunately, considering recent CB and UoM data, the outlook for tomorrow’s DGO numbers is turning a bit sour. In addition to DGO data, investors are expecting a slight uptick in New Home Sales. New Home Sales have been dragging behind Existing Home Sales, so an outperformance in tomorrow’s release could give a solid, positive boost to equities and the outlook for the U.S. housing market as a whole.

Meanwhile, the behavior in the S&P’s correlations is reflecting the uneasiness in U.S. markets. The EUR/USD registered sizable losses yesterday, and has fallen well below its psychological 1.50 level in the process. Furthermore, gold and the Cable aren’t faring too much better while a downward force tries to gain control. However, a few near-term uptrend technicals are still in place, leaving the S&P’s path in the hands of upcoming econ data releases. Therefore, investors should tread cautiously and closely monitor the S&P’s reaction to econ data and interaction with our 1st tier uptrend line.

Price: 1065
Resistances: 1070.5, 1076, 1082.25, 1088.75, 1094.5
Supports: 1063.25, 1056.25, 1048, 1039.75
Psychological: 1100, 1075, 1050

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