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Comprehensive FX and Futures Daily Commentary

FastBrokers Research Team from FastBrokersFX at 01/11/10


Daily Market Commentary

EUR/USD Pops Back to 1.45

The EUR/USD has popped back to its psychological 1.45, backed by strong volume during the Asia trading session. Investors sold off the Greenback across the board after China’s solid Trade Balance report. Investors were encouraged by the huge increase in imports to China, a sign consumption in the country is heating up. This is a positive development for struggling developed economies. Furthermore, the Trade Balance signaled a sizable increase in exports, also a positive sign in terms of consumption around the globe. The increase in imports did outpace the recovery in exports, implied by the weaker than expected overall Trade Balance figure. The continuation of China’s brisk recovery has spurred a bit of speculation and this is why we saw the pop in the risk trade during the Asia trading session.
Meanwhile, the EU did print a better than expected French Industrial Production number, an encouraging development considering last week’s stream of EU data left something to be desired. The EU should be relatively quiet on the wire until Thursday’s ECB monetary policy meeting. Despite recent sluggish data, there is presently little reason to suspect that the ECB will remove its foot from the breaks of liquidity. Hence, the Euro is experiencing a solid rally in anticipation that the ECB will either keep its policy unchanged or reign in another alternative liquidity program. The EUR/USD’s rise back to the 1.45 range is a welcome occurrence for Dollar bears. Furthermore, the EUR/USD is trading back above our 3rd tier trend line, an important measure since it runs through July 2009 lows.
Technically speaking, we’ve readjusted our downtrend lines to compensate for today’s nice topside breakout. That being said, the EUR/USD does have quite a bit of room to make up for considering the extent of December’s decline. Therefore, the EUR/USD does have some more obstacles to overcome, including 12/16, 12/14, and 12/11 highs. Meanwhile, the EUR/USD has broken through previous January highs after building a solid based above December ’09 lows. The EUR/USD has bought some more breathing room to the downside in the process, including multiple uptrend lines along with 1/8 and 12/22 lows. Furthermore, the psychological 1.45 level could become a technical cushion should the EUR/USD piece together an extended intraday rally.

Present Price: 1.4506
Resistances: 1.4549, 1.4573, 1.4599, 1.4634, 1.4653, 1.4684
Supports: 1.4499, 1.4476, 1.4460, 1.4425, 1.4388, 1.4363
Psychological: 1.45, December highs and January lows

GBP/USD Moves Higher with Broad-Based Dollar Weakness

The Cable bounced off of what is now our 1st tier uptrend line on solid volume as the Dollar experience broad-based weakness in the wake of solid Trade Balance data from China. However, the Cable’s rally has currency stopped short of previous January highs as investors away UK BRC Retail Sales Monitor and RICH House Price Balance data during the evening session. Regardless, the story dominating the headlines right now is China’s continued recovery from the nadir of the economic crisis. Imports swelled and exports turned positive, indicating consumption in China and around the globe is recovering. China’s imports outpaced exports, implied by a weaker than expected overall Trade Balance figure. Hence, investors are feeling comfortable with heading back to the risk trade as demand for products outside of China is on the rise. The UK will release Trade Balance data of its own during Tuesday trading session with investors expecting a deficit of -6.9 billion.
Technically speaking, today’s rally has created some breathing room between present price and the psychological 1.60 level once again. However, the Cable still faces multiple downtrend lines along with previous January highs. Furthermore, the 12/9-12/15 trading range could prove to be a solid barrier should it be reached. Therefore, quite a few obstacles remain considering the extent of December’s downturn. As for the downside, the Cable has multiple uptrend lines serving as technical cushions along with the psychological 1.60 level and previous January lows.

Present Price: 1.6129
Resistances: 1.6162, 1.6181, 1.6219, 1.6246, 1.6286, 1.6318
Supports: 1.6108, 1.6071, 1.6052, 1.6028, 1.5987, 1.5950
Psychological: 1.60, January highs and lows, December lows, September lows

USD/JPY Remains Calm Despite Volatility Around the FX Market

The USD/JPY is moving sideways today despite volatility around the FX market in response to China’s solid Trade Balance data. The huge increase in China’s imports is certainly an encouraging sign for Japanese exporters and manufacturers. One may expect the USD/JPY to decline with today’s return to the risk trade in most major Dollar pairs. However, the USD/JPY is about where we left it on Friday while trading above 1/7 lows. On the other hand, the USD/JPY may opt to participate with its broad-based Dollar correlation should the EUR/USD and GBP/USD extend their present gains beyond more topside technical barriers. The USD/JPY’s resilience may stem from last week’s flip-flop from Japan’s new Finance Minister Kan. Kan first sparked a rally by stating he favors a weaker Yen, yet revised his comments to display a preference for market-determined levels after the USD/JPY broke through December ’09 highs. Hence, investors may be holding pat on the USD/JPY until they get a better idea of exactly where Kan stands. Meanwhile, the USD/JPY could come back alive with tomorrow’s U.S. Trade Balance data. Solid U.S. imports could further stoke optimism concerning a recovery in Japan’s economy.
Technically speaking, the USD/JPY’s uptrend is still intact and the currency pair is holding strong above previous January lows while setting higher lows. Meanwhile, the USD/JPY faces topside technical barriers in the form of our multiple downtrend lines along with 1/07 highs. Our 3rd tier downtrend line runs through August ’09 levels. Hence, a clear breakout above this downtrend line could signal a more prolonged uptrend and a potential retest of the highly psychological 100 area over the medium-term. As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with 1/7, 1/5, and 12/24 lows. Furthermore, the psychological 90 area could serve as a technical cushion should conditions deteriorate.

Present Price: 92.44
Resistances: 92.47, 92.63, 92.83, 93.21, 93.44, 93.77
Supports: 92.26, 92.04, 91.88, 91.45, 91.22
Psychological: 95, 90, January and September Highs

Gold Continues Rally on China’s Encouraging Trade Balance

Gold charged past its psychological $1150/oz level today after solid Trade Balance data from China sparked a return to the risk trade. The FX markets experienced a jolt in activity today with the Dollar selling off across the board, a positive catalyst for gold considering their negative correlation. Gold has recovered nicely from December 2009 lows and continues to build upon its 2010 momentum. However, the precious metal appears to be cooling off right now as it tops around $1160/oz, just shy of 12/8 highs. We notice similar movements in the EUR/USD and GBP/USD, meaning gold’s correlative behavior is back in full swing. Meanwhile, investors are looking ahead to tomorrow’s U.S. Trade Balance data. It will be interesting to see what impact this data point has on the FX markets considering the Greenback has rallied recently on positive U.S. data. Hence, solid U.S. Trade Balance data could place a speed bump in gold’s current uptrend.
Technically speaking, gold has multiple uptrend lines serving as technical cushions along with intraday, 1/8, 12/30, and 12/22 lows. Meanwhile, gold’s psychological $1150/oz area could serve as a technical cushion. As for the topside, gold faces technical barriers in the form of 12/7 and 11/18, 11/23, and 11/27 highs along with the psychological $1175/oz level.

Present Price: $1152.65/oz
Resistances: $1156.12/oz, $1160.50/oz, $1165.20/oz, $1168.96/oz, $1173.34/oz, $1178.36/oz
Supports: $1150.48/oz, $1146.72/oz, $1143.90/oz, $1139.51/oz, $1137.01/oz, $1130.43/oz
Psychological: $1175/oz, $1150/oz, December highs and January lows

Crude Sets New 2010 Highs Following China Trade Data

Crude futures briefly set new 2010 highs after solid Trade Balance data from China sparked a rally in the risk trade. Crude benefits from today’s decline in the Dollar combined with China’s increase in imports and car sales. The rise in imports implies an increase in consumption and demand for energy, a positive catalyst for crude. Additionally, China surpassed America as the world’s #1 automobile consumer. More cars on the road imply an increase in demand for petrol, another positive catalyst for crude. However, crude futures aren’t showing the kind of reaction we’re witnessing in the Dollar. Hence, it seems crude may be a bit overbought considering the extent of crude’s rally since December lows. However, should economic data continue to flow positively crude could participate more in broad-based market activity. Meanwhile, cold fronts continue to batter the globe with snow and frigid temperatures. As a result, the increase in demand for heating oil could continue to buoy crude above its psychological $80/bbl level.
Technically speaking, crude presently has limited topside technicals in place besides previous 2010 highs along with the psychological $85/bbl level. As for the downside, crude has multiple uptrend lines serving as technical cushions along with 1/8 and 1/6 lows and the psychological $80/bbl level should it be tested.

Price: $83.13/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 Edge Higher as Dollar Weakens

The S&P is bouncing higher today as the Dollar weakens in reaction to solid Trade Balance data from China. China’s Trade Balance revealed a surge in imports, an encouraging sign for U.S. manufacturers. Additionally, China’s exports turned positive, implying a recovery in consumption in developed countries. The Dollar sold off during the Asia trading session, a positive catalyst for the S&P futures since they are negatively correlated. Furthermore, last Friday’s discouraging U.S. employment figure may be contributing to the risk trade’s return with investors snapping up higher yielding currencies. The U.S. will release Trade Balance data of its own tomorrow. It will be interesting to see if China’s impressive rise in imports is reflected in demand for U.S. exports. Additionally, should tomorrow’s data print strong it will also be intriguing to see how the Dollar reacts since the Greenback has been rallying on recent positive data releases. Meanwhile, if tomorrow’s data print’s negatively we may see the Dollar’s current pullback accelerate. That being said, it seems the S&P futures may win either way. Positive economic data clearly benefits U.S. companies and helps move stocks higher. Furthermore, negative economic data encourages investors to sell of the Dollar, also a positive catalyst for the S&P futures since they are negatively correlated. Hence, the S&P could continue its gradual rise until a large shock is delivered.
Technically speaking, the S&P futures are riding along their medium-term uptrend as they 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. As for the downside, the S&P futures have multiple uptrend lines serving as technical cushions along with the 1/8, 1/7, 1/5 and 1/3 lows and highly psychological 1100 level should it be tested.

Price: 1140.75
Resistances: 1146, 1148
Supports: 1139.25, 1135.75, 1133.25, 1130.75, 1127.25, 1124.5
Psychological: 1150, 1100, 2010 Highs and January Lows

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