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Comprehensive FX and Futures Daily Commentary

FastBrokers Research Team from FastBrokersFX at 01/07/10


Daily Market Commentary

EUR/USD Heads Lower in Continued Consolidation

The EUR/USD is continuing its consolidative pattern despite sizable gains in gold. We recognize similar behavior in the GBP/USD and the EUR/GBP is moving sideways. Investors are digesting a wealth of news and data. Yesterday’s U.S. ADP number and Services PMI both printed slightly below expectations while EU Industrial New Orders also disappointed. Additionally, today the EU released a negative set of Retail Sales data. Hence, the global economic recovery continues to materialize at a sluggish pace in the West. As for the East, China raised new bond issues by 4 basis points and investors are taking this as a signal that China may be more conservative monetarily in 2010. Additionally, Australia’s Retail Sales came in hotter than anticipated. Therefore, the East continues to lead the global economic recovery. However, the U.S. did print an encouraging weekly Unemployment Claims number today, and attention remains focused on Friday’s headline Unemployment Rate and Employment Change releases. If tomorrow’s U.S. employment data impresses, we could see another leg down in the EUR/USD since this week’s EU data has been disappointing. On the other hand, discouraging employment data could add more weight to recent Fed Minutes hinting that the central bank is considering expanding its asset purchase program to keep the U.S. housing market afloat, a positive development for the EUR/USD. For the time being the theme continues to be Dollar strength.

Technically speaking, the EUR/USD still faces multiple downtrend lines along with the psychological 1.45 level, 1/05, 12/23, and 12/18 highs. Hence, some challenging near-term topside technicals are in place due to the EUR/USD’s downturn in December. As for the downside, the EUR/USD has technical cushions in the form of our 1st and 2nd tier uptrend lines along with intraday and 1/04 and 12/22 lows. The EUR/USD is still trading well below our 3rd tier uptrend line that runs through July lows, meaning the currency pair could be in for more losses over the medium-term towards the psychological 1.40 should U.S. data continue to outperform. On an encouraging note, the EUR/USD is setting higher lows, creating the possibility of a new base.

Present Price: 1.4343
Resistances: 1.4356, 1.4390, 1.4418, 1.4439, 1.4458, 1.4484
Supports: 1.4323, 1.4303, 1.4267, 1.4235, 1.4216
Psychological: 1.45, 1.40, December and September Lows

GBP/USD Steps on our 2nd Tier Uptrend Line

Yesterday’s UK Services PMI number printed in line and today’s Halifax PMI came in slightly above expectations, creating a positively mixed environment for the Pound. The Pound has gained a little strength in reaction as the EUR/GBP starts to top out. However, the Cable has given back most of January’s gains and is trying to stabilize above our 2nd tier uptrend line and 12/30 lows. Despite today’s attempt to set a bottom, there remains a downward force bearing down on the Cable. We witness similar behavior in the EUR/USD while the USD/JPY pops. Hence, the FX theme seems to be one of broad-based Dollar strength. However, the question is whether the Dollar is gaining its strength from an inclination to head for safety. The improvement in Western economic data seems to be tapering off, placing more weight on tomorrow’s U.S data set. The U.S. will release its headline Unemployment Rate and Employment Change figures and the data could prove to be a market mover. Investors should keep in mind that December’s Dollar rally was trigger by a turnaround in U.S. employment data. Hence, if tomorrow’s data prints better than expected we could witness another wave of Dollar buying, a negative development for the Cable. On the other hand, disappointing employment numbers could add to speculation that the Fed will maintain a loose monetary policy for a while and allow the Cable to challenge some of our downtrend lines. In addition to tomorrow’s U.S. data, the UK will release PPI. The BoE kept its monetary policy unchanged as anticipated, indicating the central bank is keeping a close eye on inflation to determine whether to scale back some of its QE measures at its next meeting. Hence, it will be interesting to see how tomorrow’s UK PPI turns out.

Technically speaking, the psychological 1.60 level is serving as a technical barrier once again along with our multiple downtrend lines and January highs. As for the downside, our near-term technical cushions are wearing thing with our 1st and 2nd tier uptrend lines sitting nearby along with December ’09 lows. December’s downturn was a key development for the Cable. Hence, if our present technical cushions don’t hold the Cable may fall back towards September ’09 lows.

Present Price: 1.5930
Resistances: 1.5973, 1.5995, 1.6024, 1.6058, 1.6085, 1.6107
Supports: 1.5928, 1.5901, 1.5876, 1.5848, 1.5823, 1.5789
Psychological: 1.60, December highs and lows, September lows

USD/JPY Pops on Fuji’s Resignation

The USD/JPY is popping past previous January highs on the news that Finance Minister Fuji is resigning for health reasons. Fuji’s replacement, Naoto Kan, has already established a more dovish monetary stance after expressing his preference for a weaker Yen. Kan’s approach counteracts Fuji’s more neutral monetary stance, encouraging investors to sell-off the Yen, a positive development for the USD/JPY. Meanwhile, the FX markets continue to exhibit strength in the Greenback, highlighted by weakness in the EUR/USD and Cable. Hence, not only is the USD/JPY benefitting from Fuji’s resignation but also broad-based Dollar strength. Investors are continuing to eye tomorrow’s U.S. economic data set. The U.S. will print its headline Unemployment Rate and Employment Change data. Since a turnaround in U.S. employment data triggered December’s Dollar rally, tomorrow’s data set could carry some added weight. Therefore, more impressive U.S. employment data could benefit the USD/JPY once again. On the other hand, disappointing data could stymie the USD/JPY’s current rally.

Technically speaking, the USD/JPY overcame some notable topside barriers during the month of December, most notably the psychological 90 level and a few heavily-weighted downtrend lines. Speaking of downtrend lines, the USD/JPY just broke through what is now our 1st tier downtrend line. Our 1st tier runs through August highs. Therefore, should the USD/JPY create some topside separation we could potentially witness a run towards the 97.50 area. Meanwhile, the USD/JPY faces multiple downtrend lines along with September highs and the psychological 95 zone. As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with intraday and 1/05 lows. Furthermore, the psychological 90 area could serve as a suitable cushion should it be tested.

Present Price: 93.17
Resistances: 93.21, 93.39, 93.60, 93.81, 94.08, 94.30
Supports: 92.94, 92.69, 92.46, 92.26, 92.07, 91.90
Psychological: 95, 90, January and September Highs

Gold Tops Out Following Solid Run

Gold is topping out below $1150/oz after a solid run despite recent weakness in the EUR/USD and GBP/USD. However, it seems gold’s usual negative correlation with the Dollar is coming back into play today. Gold is edging lower as we witness broad-based strength in the Greenback in reaction to a monetary tightening in China combined with weak data from the EU. Meanwhile, attention remains focused on tomorrow’s U.S. data set. The U.S. will release its headline Unemployment Rate and Employment Change figures. Seeing as a turnaround in U.S. employment triggered December’s Dollar rally, tomorrow’s employment data could stir up volatility in the FX markets should the numbers deviate from analyst expectations. Stronger than expected U.S employment data could encourage investors to snap up the Dollar again, normally a negative catalyst for the gold. On the other hand, discouraging employment numbers could yield broad-based weakness in the Dollar, a negative development for gold. Therefore, investors should keep an eye on the Dollar’s reaction to tomorrow’s economic data releases.

Technically speaking, gold has multiple uptrend lines serving as technical cushions along with 1/05, 12/30, and 12/22 lows. On an encouraging note, gold has set consecutive higher lows after bottoming out in December, and we are currently unable to form a noteworthy downtrend line. Therefore, gold could have some decent upward mobility should the Dollar weaken in reaction to upcoming U.S. data. Meanwhile, our 1st tier uptrend line could prove to be an important trend line since it runs through 10/28 lows, or the $1025/oz level. As for the topside, gold faces technical barriers in the form of 12/17 and 11/18 highs along with the psychological $1150/oz level.

Present Price: $1130.25/oz
Resistances: $1132.99/oz, $1137.41/oz, $1141.33/oz, $1145.40/oz, $1149.29/oz, $1153.17/oz
Supports: $1128.09/oz, $1124.03/oz, $1119.82/oz, $1115.29/oz, $1110.43/oz, $1105.57/oz
Psychological: $1100/oz, $1150/oz, December highs and January lows

Crude Consolidate Below December Highs Following Breakthrough

The Crude futures are consolidating just below December ’09 highs after breaking through yesterday. Crude charged higher, continuing its impressive run despite weekly crude inventories coming in stronger than anticipated. Cold fronts in the U.S. and China are increasing the outlook for demand of heating oil as regions get hit by record-setting temperatures, a positive catalyst for crude. The combination of abnormally cold weather and downtrends in the EUR/USD and GBP/USD appears to be the catalysts driving crude higher. However, it will be interesting to see how crude reacts to tomorrow’s U.S. economic data. The U.S. will release its headline Unemployment Rate and Employment Change figures. Another substantial improvement in U.S. employment could result in further Dollar strength, a positive development for crude. Furthermore, a decline in unemployment implies an increase in consumption of and demand for energy. On the other hand, should tomorrow’s economic data disappoint, the Dollar could come under selling pressure, a negative catalyst for crude. Hence, tomorrow’s U.S. employment data could determine whether crude is able to build off of yesterday’s break above 2009 highs.

Technically speaking, crude presently has limited topside technicals in place besides 2009 and January highs along with the psychological $85/bbl level. As for the downside, crude has multiple uptrend lines serving as technical cushions along with 1/06 lows and the psychological $80/bbl level.

Price: $82.80/bbl
Resistances: $82.82/bbl, $83.18/bbl, $83.46/bbl
Supports: $82.26/bbl, $81.57/bbl, $81.12/bbl, $80.78/bbl, $80.42/bbl, $79.86/bbl
Psychological: $85/bbl, $80/bbl, 2009 and 2010 highs

S&P Futures Consolidate as Investors Await Friday’s Data

The S&P futures are continuing their consolidation amid mixed global economic data as investors eagerly await tomorrow’s headline U.S. Unemployment Rate and Employment Change figures. A noticeable turnaround in U.S. employment resulted in a December rally in both equities and the Dollar. Hence, tomorrow’s data set could yield volatility in both equities and the FX market. Meanwhile, the EU printed discouraging Retail Sales and Factory Orders data, signaling the EU’s economic recovery is materializing at a sluggish pace. The U.S. did release a weekly Unemployment Claims number which was a bit brighter than analyst expectations. However, the release isn’t having too much of an impact on equities at the moment. Moving East, China increased the interest rate on its new bond issuance by 4 basis points. Although the rise in interest rates is only a minor development at the time, some analysts and investors are speculating that China could begin to curb some of its excess liquidity to discourage the formation of asset bubbles. Moving South, Australia’s Retail Sales and Trade Balance data all printed positive, bucking a trend of Dollar strength and sending the Aussie higher against the Greenback. Therefore, it seems economic recoveries in the East are outpacing those of the West. Meanwhile, investors should eye tomorrow’s employment data and the reaction in the FX markets. That being said, the S&P futures could hold up relatively well even if the employment numbers don’t print as positively as anticipated. Slugging employment data could entice investors to sell-off the Dollar, a positive catalyst for the S&P futures since they were negatively correlated with the Dollar throughout most of 2009.
Technically speaking, the S&P futures are riding along their medium-term uptrend as they look to create more separation from the highly psychological 1100 level. As for the topside, the S&P futures face technical barriers in the form of 2010 highs along with the psychological 1150 level should it be tested. As for the downside, the S&P futures have multiple uptrend lines serving as technical cushions along with the January lows and highly psychological 1100 level.

Price: 1129.75
Resistances: 1132.75, 1135.5
Supports: 1128.5, 1127, 1124.75, 1122.25, 1119.75, 1117.25
Psychological: 1100, 1150, 1075, 2010 Highs and January Lows

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