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Comprehensive FX and Futures Daily Research

FastBrokers Research Team from FastBrokersFX at 11/17/09


Daily Market Commentary

EUR/USD Trades Lower as Investors Await More Data

The EUR/USD is trading lower this morning as the S&P futures consolidate just above 1100. The EU is relatively quiet on the data front right now, making the EUR/USD’s present movements more reliant the Dollar’s reaction to upcoming economic data. Thus far we received slightly better than expected CPI and RPI data from Britain earlier in the session followed by weak PPI numbers from the U.S. The most disconcerting release was the -0.6% Core PPI reading (minus food and energy). The -0.6% decline is the largest in the Core number since November 2006. The setback in producer prices adds onto the sluggish EMI, Business Inventories, and Core Retail Sales data investors received yesterday. In other words, prices are declining while manufacturing slows and inventories rise, not to mention retail sales minus autos are weak as well. Hence, the Fed just received more evidence which may support its continued loose monetary policy stance. As a result, one would expect the Dollar to decline and the EUR/USD to benefit after such news. However, we will have to wait and see how the rest of today’s data pans out.

Meanwhile, the EUR/GBP is experiencing further downward pressure today as investors continue to disfavor the Euro based off of Friday’s disappointing GDP numbers. The EU won’t have much data this week to improve investor sentiment besides tomorrow’s Current Account release. Investors are expecting an account surplus of 0.6 billion Euros. An optimistic Current Account number could help out the Euro since an increase in exports implies a stronger currency. The U.S. will release CPI and Building Permits data on Wednesday as well, meaning the Dollar could be in for further volatility.
Technically speaking, the EUR/USD faces multiple downtrend lines along with the highly psychological 1.50 level and previous November highs. However, and a breach beyond our 3rd tire downtrend line could result in a retest of November and October highs with the possibility of more accelerated immediate-term gains. Unfortunately for bulls, the EUR/USD was negated by our 3rd tier downtrend line and 1.50 yesterday, telling us the 1.50 zone continues to have a psychological impact on the currency pair. As for the downside, the EUR/USD has built up a solid support system considering the rally since November lows. Therefore, the EUR/USD has multiple uptrend lines serving as technical cushions along with 11/12 and 10/27 lows. Meanwhile, investors should keep an eye on the S&P’s interaction with its psychological 1100 level because a topside breakout in the S&P could bring the EUR/USD along for the ride due to their positive correlation.

Present Price: 1.4886
Resistances: 1.4905, 1.4919, 1.4941, 1.4967, 1.4992, 1.5018
Supports: 1.4883, 1.4856, 1.4827, 1.4813, 1.4792, 1.4770
Psychological: 1.50, November Highs and Lows

GBP/USD Weakens After Setting New November Highs

The Cable is experiencing a little selling pressure after briefly trading beyond November highs. The Cable added onto gains since our last post as the currency pair followed U.S. equities higher. Britain re-entered the news wire today with the release of CPI and RPI data. Both data points printed a basis point hotter than analyst expectations. As a result, the BoE has gained a little breathing room in regards to its upcoming monetary policy decision by avoiding a movement below 1%. Meanwhile, the U.S. released PPI data which came in short of analyst expectations. The most disconcerting number was the -0.6% Core PPI reading (minus food and energy). The -0.6% number is the weakest since November 2006, indicating the Fed’s alternative liquidity measures haven’t relieved deflationary pressures resulting from a decline in consumption. Today’s negative pricing data further supports the Fed’s decisions to maintain its loose monetary policy stance for the foreseeable future.

The positive pricing data from Britain combined with weak pricing data from the U.S. would normally lead investors to expect a decline in the Dollar. However, the Dollar as shown a muted reaction thus far as investors await additional U.S. economic data. On the other hand, the combination of British and U.S. pricing data is giving the Pound a bit of relative strength, as highlighted by a pullback in the EUR/GBP. Britain will release its CBI Industrial Order Expectations on Wednesday along with central bank meeting minutes. Investors will likely be paying close attention to the meeting minutes to see whether there are any hints in regards to the BoE’s outlook for future monetary policy decisions and well as their opinion of the overall economy.

Technically speaking, the Cable’s move beyond our 4th tier downtrend line could prove to be an important near-term move considering the trend line runs through 11/09 highs. The GBP/USD faces light near-term historical resistance between present price and the psychological 1.70 level. In fact, we had to trace back to 2003 levels to find more substantial resistances. Hence, the Cable could be in for more extensive topside movements should fundamentals and U.S. equities cooperate. However, the Cable has drifted back below 11/09 highs, meaning there’s a potential for downward forces to kick in. As for the downside, the Cable still has multiple uptrend lines serving as technical cushions along with 11/16 and 11/12 lows. Furthermore, the psychological 1.65 level could work in the Cable’s favor should conditions deteriorate.

Present Price: 1.6790
Resistances: 1.6808, 1.6828, 1.6849, 1.6875, 1.6896, 1.6913, 1.6935
Supports: 1.6790, 1.6730, 1.6694, 1.6664, 1.6615, 1.6594
Psychological: 1.65, 1.70, November and August Highs, November Lows


USD/JPY Fluctuates Around Our 1st and 2nd Tier Uptrend Lines

The USD/JPY is bouncing between our 1st and 2nd tier uptrend lines as investors digest the latest wave of U.S. econ data. Today’s U.S. data printed negatively mixed once again, with TIC Long-Term Purchases proving to be the only winner. Meanwhile, investors shouldn’t forget that Japan’s Prelim GDP topped expectations by 5 basis points to kick off the week. Therefore, one may expect investors to send the USD/JPY lower due to a more favorable outlook for the Yen as compared to the Dollar. However, the USD/JPY is proving to be resilient above our 1st tier uptrend line since the currency pair is drifting closer to a retracement towards October lows. Meanwhile, it seems are paying closer attention to the S&P’s ongoing interaction with its highly psychological 1100 level. The USD/JPY’s correlative behavior has been erratic lately, making this major Dollar cross a tougher read these days. Regardless, there is still a long-term downtrend at play and our technical cushions are wearing thin.

Technically speaking, the USD/JPY is presently fighting to stay above our 1st and 2nd tier uptrend lines. Should our 1st tier give way, the currency pair still has 10/2 lows along with October lows serving as technical cushions. As for the topside, the USD/JPY faces multiple downtrend lines along with the highly psychological 90 level. Therefore, quite a few topside challenges are in place. Meanwhile, the U.S. will release CPI and Building Permits data on Wednesday, meaning overall activity in the FX market could pick up.

Present Price: 89.23
Resistances: 89.31, 89.41, 89.54, 89.68, 89.83, 89.89, 90.07
Supports: 89.15, 88.99, 88.85, 88.73, 88.58, 88.44
Psychological: 90, November and October Lows

Gold Trades Lower as Dollar Gains

Gold is pulling back from intraday highs after trading at new record levels just above $1140/oz. Present weakness stems from a combination of profit taking and broad-based strength in the Dollar. However, despite today’s slight pullback, there remains little reason to be technically negative on gold due to the lack of historical perspective to the topside. Investors would likely need to witness significant strength in the Dollar in order to make a noteworthy dent in gold. After all, gold has proven to be more closely correlated to the Dollar than U.S. equities. Therefore, investors should keep an eye on current weakness in the EUR/USD and AUD/USD and monitor whether any key supports are taken out in these currency pairs.

Meanwhile, U.S. economic data continues to print negatively mixed, including today’s disappointing PPI data. The disappointing Core PPI number further supports the Fed’s plan to maintain its loose monetary policy for the foreseeable future. The Fed’s dovish attitude implies the continuation of a broad-based weakness in the Dollar. Therefore, gold’s downside movements have been limited today, and the potential for further near-term gains remains.

Technically speaking, we’re still unable to install a downtrend line on our chart due to a lack of historical perspective. Therefore, it’s difficult to find any topside technical barriers besides gold’s potentially psychological $1150/oz level. As for the downside, gold has multiple uptrend lines serving as technical cushions along with 11.16 lows and the psychological $1100/oz level.

Present Price: $1131.95/oz
Resistances: $1134.71/oz, $1138.63/oz, $1143.16/oz
Supports: $1127.24/oz, $1124.42/oz, $1122.54/oz, $1117.87/oz, $1114.39/oz, $1111.49/oz
Psychological: $1100/oz., $1150/oz.

The S&P Futures Hold Strong Above 1100

The S&P futures are holding strong above their highly psychological 1100 level despite another wave of negatively mixed data. Industrial Production, PPI, and Capacity Utilization rate data all printed weaker than expected. Possibly the most discouraging figure is the -0.6% Core PPI reading (minus food and energy). The -0.6% Core PPI number shows the Fed’s alternative liquidity measures are not fully countering deflationary pressures. Today’s downturn in PPI further supports the presumption that the Fed will maintain a loose monetary stance for the foreseeable future. The continuation of dovish monetary policy implies further weakness in the Dollar and more attractive funding for corporations, thereby improving near-term corporate performance. As a result, the S&P futures are continuing to cast aside cautionary economic data reports.

The silver lining in today’s data flow is the better than expected TIC Long-Term Purchases number. The positive TIC number suggests foreign interest remains for ballooning U.S. Treasury auctions. Therefore, the Fed apparently has the international monetary support to continue its loose monetary policy for the time being. The U.S. will release more heavily weighted data tomorrow, including CPI and Building Permits along with Housing Starts and weekly Crude Inventories. Therefore, markets could remain active for the next 24-48 hours.

Technically speaking, we’re presently unable to place any near-term topside technicals on the S&P futures due to a lack of perspective. However, the psychological 1100 area continues to play a key role considering it has been a strong technical barrier for the past month. On a positive note, the S&P futures have avoided a sizable retracement below 1100 following yesterday’s breakthrough. Meanwhile, the S&P futures have multiple uptrend lines serving as technical cushions along with the psychological 1100 level and 11/13, 11/09, and 11/05 lows.

Price: 1106
Resistances: 1112
Supports: 1098.75, 1089.5, 1082.5, 1071.25, 1061.75, 1056.5
Psychological: 1100, Previous 2009 Highs, 1075

Crude Consolidates Below $80/bbl

Crude futures are leveling off below the psychological $80/bbl level as investors digest another wave of negatively mixed econ data. As far as crude is concerned, the weak Industrial Production number is a bit worrisome since a pullback in production could take a bite out of the aggregate demand for and consumption of crude. On a positive note, although the Euro is logging sizable gains against the Dollar today, the GBP/USD and gold are holding up comparatively well. Furthermore, the S&P futures are still trading above their highly psychological 1100 level. As a result, crude has opted to consolidate until both the Dollar and U.S. equities make a more substantial directional commitment. That being said, a follow-through topside movement in the S&P futures beyond 1100 could weaken the Dollar and give crude a boost towards $80/bbl and our 2nd tier downtrend line. Meanwhile, investors will receive another wave of key economic data tomorrow along with weekly crude inventories. Investors are expecting a slight pullback from 1.8 million barrels to 1.2 million barrels. Weekly inventories data was a market mover last week, meaning investors should monitor tomorrow’s release.

Technically speaking, crude still faces multiple topside barriers in the form of our 1st and 2nd tier downtrend lines along with the psychological $80/bbl level. Furthermore, a movement back above our key 1st tier uptrend line could prove to be a positive development for crude. As for the downside, there are a couple potential uptrend lines we can form while 11/16 and 11/13s lows serve as technical cushions.

Price: $78.74/bbl
Resistances: $78.62/bbl, $79.15/bbl, $79.55/bbl, $80.02/bbl, $80.45/bbl, $81.01/bbl
Supports: $77.85/bbl, $77.34/bbl, $77.03/bbl, $76.54/bbl, $75.54/bbl
Psychological: 2009 highs, $75/bbl, $80/bbl

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