Comprehensive FX and Futures Daily Research
FastBrokers Research Team from at 09/24/09
Daily Market Commentary
EUR/USD Consolidates as Cable Implodes
Broad-based strength in the Dollar and U.S. equities is dragging and the EUR/USD is consolidating below September highs in reaction. We recognize technically significant pullbacks in crude and the Cable, indicating a more debilitating downturn may be approaching. Meanwhile, the S&P futures are sinking below our 2nd tier uptrend line, and are looking to test our important 1st tier uptrend line. The Euro continues to flex a relative strength despite Germany’s Ifo Business Climate coming in shy of analyst expectations. Today’s business climate release combines with negatively mixed EU PMI data on Wednesday. Additionally, U.S. Existing Home Sales registered a surprising decline this morning. In all, we are witnessing a slowdown in broad economic indicators around the globe. It seems the global economic recovery has hit a speed bump. The retraction is taking a bite out of investor sentiment today. Now the question becomes whether this is a minor speed bump on the path to recovery, or the beginning of a double dip recession as some analysts have been predicting. While we wouldn’t rule out the latter, it is clearly too early to call. We also wouldn’t give up on the EUR/USD’s near-term uptrend since the currency pair has several uptrend lines to fall back on. For the time being, investors should keep an eye on the S&P futures as a true barometer. Any significant technical deterioration in the S&P would likely drag the EUR/USD lower with it. Conversely, resilience of the S&P futures at our 1st tier uptrend line would hold the ship together. Meanwhile, the Euro should continue to exercise its relative strength as long as the Fed stands pat and the BoE exhibits such a potent dovish behavior monetarily. Regardless, investors should certainly monitor the situation closely.
Technically speaking, the EUR/USD has one more tough area of resistance before taking another large leg up. 8/21/08 highs and the 8/12/08-8/13/08 consolidation represent a zone of strong technical resistance, especially since they revolve around the highly psychological 1.50 level. That being said, the EUR/USD may have limited room to the topside for the immediate-term. However, an eclipse of these levels on a boost in volume could ignite another impressive rally in the currency pair. As for the downside, the EUR/USD has multiple uptrend lines serving as technical cushions along with weekly lows and the psychological 1.45 level. Therefore, the EUR/USD has several lines of defense to the downside. Though the uptrend is intact, we are initiating a neutral outlook on the EUR/USD as we monitor the behavior of the Dollar and U.S. equities.
Present Price: 1.4719
Resistances: 1.4724, 1.4725, 1.4780, 1.4798, 1.4822, 1.4841
Supports: 1.4703, 1.4678, 1.4656, 1.4634, 1.4611
Psychological: 1.45, 1.50
GBP/USD Collapses Beneath September Lows
The Cable has capsized beneath previous September lows on heavy sell-side volume. BoE Governor King didn’t take long to return to his dovish stance. Today Governor King confirmed our suspicions that the BoE is supportive of a weak Pound in order to make its service and manufacturing goods more attractive to international demand. Therefore, it seems the BoE will continue to take actions necessary to keep the Pound weak in order to boost demand for its goods and services while buoying Britain’s employment market. King’s comments are rocking the Pound once again, sending the GBP/USD tumbling while shooting the EUR/GBP closer to par. Our near-term outlook on the GBP/USD has been justified, and the GBP/USD is on the brink of sacrificing some important technical supports. The Cable is quickly approaching July 2008 lows and the highly psychological 1.60 level. Though 1.60 should ideally serve as a heft psychological cushion, the Cable’s uptrend lines are wearing thin. Therefore, the GBP/USD only has a few more strings to pull before registering even more significant losses than we’ve witnessed thus far. However, before we get ahead of ourselves, investors should key in on our 1st-3rd uptrend lines along with 1.60.
Meanwhile, U.S. and EU economic data releases certainly aren’t helping the GBP/USD’s uptrend. The S&P futures are taking a hit today after Existing Home Sales registered a surprising deterioration. Additionally, Germany’s Ifo Business Climate came in shy of analyst expectations, joining Wednesday’s negatively mixed EU PMI releases. Looking to commodities, crude has crashed below our 1st tier uptrend line and gold has darted beneath $1000/oz. While the S&P futures, gold, and the EUR/USD have some more uptrend lines to salvage the near-term uptrend, the overall downtrend of the Dollar is facing a considerable challenge. Therefore, investors should eye important technical supports in all of the Cable’s correlations. Though Britain won’t be releasing any more econ data this week, we will receive a wave of important numbers from the U.S. If U.S. data disappoints and the S&P’s 1st tier uptrend line fails, the GBP/USD’s downturn may exacerbate. On the other hand, positive U.S. econ data could help break the Cable’s fall and help the currency pair stabilize. Additionally, investors shouldn’t overlook the encouraging decline in today’s weekly Unemployment Claims release. We maintain our negative outlook on the GBP/USD trend-wise, though 1.60 and July 2008 lows should serve as reliable immediate-term supports should they be tested.
Present Price: 1.6082
Resistances: 1.6091, 1.6117, 1.6139, 1.6158, 1.6181, 1.6203
Supports: 1.6049, 1.6030, 1.6008, 1.5978, 1.5951, 1.5921
USD/JPY Stabilizes from our 1st Tier Uptrend Line
The USD/JPY has averted a retest of September lows once again, finding bottom on our 1st tier uptrend line. U.S. equities and crude are retreating while the Dollar experiences a broad-based appreciation due to a combination of weak econ data from the U.S. and EU along with more dovish statements from BoE Governor King. Crude has dropped beneath our important 1st tier uptrend line while U.S. Treasuries strengthen. Global markets have made some bearish movements over the past 24 hours, preceded by a hefty retreat in the Shanghai Composite and Baltic Indexes earlier this week. These factors combined are helping the USD/JPY base while avoiding a collapse beneath September lows and the psychological 90 level. While we maintain our negative outlook on the USD/JPY trend-wise, the aforementioned developments are certainly causing a stir in equity markets. If the broad-based appreciation of the Dollar takes a technical step forward, the USD/JPY may be inclined to follow due to correlation.
Meanwhile, Japan’s Trade Balance data topped analyst expectations as we expected. Unfortunately, Japan also cautioned that the completion of stimulus measures may leave a gaping hole in demand for Japanese exports. Therefore, Japan’s encouraging Trade Balance number comes with a cautionary lining. Investors should continue to pay particularly close attention to Chinese equity markets and economic indicators. A further slowdown in the pace of China’s economic recovery would place extraordinary pressure on Japanese manufacturers and exporters since China has been the engine of the global recovery.
Technically speaking, the continual defense of the highly psychological 90 area is not surprising. The USD/JPY is exhibiting behavior conductive for building a new base. Such a development could be encouraging for the USD/JPY’s near-term performance. However, investors shouldn’t forget the technical collapse of the USD/JPY over the past month and a half. Furthermore, the DPJ’s fiscal policy is rumored to be supportive of a stronger Yen. Hence, the longer-term downtrend of the USD/JPY is still intact until the currency pair overcomes some serious downward pressures. The USD/JPY currently faces technical barriers in the form of our 5 downtrend lines, 9/21 highs, and 9/7 highs. As for the downside, the USD/JPY does have some historical consolidation between 88.50 and 90. Therefore, near-term losses should be limited due to the technical and psychological significance of present levels. As a result, present technicals continue to favor immediate-term gains over losses.
Present Price: 91.12
Resistances: 91.22, 91.42, 91.62, 91.80, 91.91, 92.18
Supports: 90.88, 90.69, 90.44, 90.23, 90.11
Gold Drops like a Rock to $1000/oz
Gold failed to get back above previous September highs once again, and is experiencing a large bar down on heightened sell-side volume. The retracement in gold comes in reaction to the collapse of the GBP/USD in addition to a broad-based appreciation of the Dollar. The positive Dollar flows are in reaction to weaker than expected U.S. Existing Home Sales and German Ifo Business Climate data. Additionally, BoE Governor King didn’t wait long to reignite dovish fears, and crude has gotten hammered beneath our important 1st tier uptrend line. The combination of negative events are leading investors away from risk and towards the Dollar, dragging gold down due to its negative correlation with the Greenback. While the Cable and crude have sacrificed their 1st tier uptrend lines, the EUR/USD and the S&P futures are holding strong above their own 1st tiers. However, a full commitment to the downside would likely force a larger pullback in gold. Therefore, the medium-term uptrend is facing its first considerable challenge in quite some time. Hence, investors should keep an eye on gold’s 1st tier uptrend line since it runs through 9/10 lows. A retracement below our 1st tier uptrend line would likely result in a more protracted selloff. Even though gold’s uptrend is still intact, we are initiating a neutral stance until we see how these various interactions with 1st tier uptrend lines pans out. Meanwhile, tomorrow’s wave of U.S. economic data should help determine whether the broad-based downturn accelerates are moderates.
Present Price: $997.95/oz
Resistances: $998.94/oz, $1000.39/oz, $10002.93/oz, $1004.75/oz, $1007.11/oz
Supports: $996.58/oz, $995.13/oz, $993.14/oz, $991.68/oz, $998.78/oz, $986.97/oz
The S&P Futures Sink to our Important 1st Tier Uptrend Line
The S&P futures are tacking onto yesterday’s losses, pulling back to our important 1st tier uptrend line. Our 1st tier uptrend line carrier considerable weight since it runs through September lows, which also represent the highly psychological 1000 level. Therefore, any drop beneath our 1st tier on substantial volume could trigger a more protracted selloff towards 1000. Yesterday’s decline came on heighted sell-side volume, and we notice an increase in negative activity today. Therefore, the S&P’s uptrend is facing its first formidable challenge in quite some time. While the S&P’s 1st tier is holding up, the Cable and crude futures were not so lucky. The Cable has been hit by another wave of extensive downward pressure after BoE Governor King made another round of dovish comments. Meanwhile, crude futures have been hammered by the combination of an inventory surplus and a decline in Chinese crude demand. Lastly, U.S. Treasuries are strengthening and staring down previous September highs. Hence, while the S&P’s 1st tier uptrend line is holding strong, the behavior of the index’s correlations are raising investor uncertainty.
The Federal Reserve kept its monetary policy unchanged yesterday as we anticipated. However, the Fed has announced the discontinuation of a couple corporate liquidity measures today. While this decision is a drop in the bucket in the grand liquidity scheme, it seems the Fed is opting to play some psychological games to help buoy the Dollar. The FX markets are taking notice, and investors should eye the technical behavior of the Greenback for the remainder of the week. Even though the Fed is halting a couple liquidity programs, we still don’t believe the Fed will tighten for quite some time since economic fundamentals are still in a fragile state. This week we’ve seen a pullback in global economic data, showing the recovery is cooling off a bit. It remains to be seen whether this is a speed bump on the path North, or the beginning of a more substantial deterioration.
For the time being, the S&P futures may opt to stay above our 1st tier uptrend line until we receive tomorrow’s wave of U.S. economic data. The U.S. will release Durable Goods Orders, New Home Sales, and the Revised UofM Consumer Sentiment. Even though today’s Existing Home Sales number missed expectations, weekly Unemployment Claims experienced an encouraging decline. Additionally, investors shouldn’t forget the very positive batch of U.S. economic data we received last week. Positive econ data tomorrow could help buoy the S&P futures and avert a more protracted selloff. On the other hand, disappointing numbers would only exacerbate the S&P’s pullback. Even though the S&P’s uptrend is intact, we are initiating a neutral stance on the futures due to the worrisome behavior of some of their correlations. Therefore, we believe investors should exercise caution for the immediate-term.
Resistances: 1051.5, 1055.5, 1059, 1064.5, 1069.5
Supports: 1045, 1042.5, 1038.5, 1034.25, 1028.5, 1023
Psychological: 1050, 1000, 1075
Crude Futures Dive on Inventory Surplus and Stronger Dollar
Crude futures have experienced a sharp selloff over the past 24 hours, collapsing after sinking beneath our previous 1st tier uptrend line. Yesterday’s selloff was accompanied by large sell-side activity, and today is shaping up to be a high volume session as well. Crude futures snapped out of their $68-$72/bbl trading band after weekly inventories registered a spike in supply. The inventory surplus follows data from China revealing a decline in crude imports for the second straight month. Hence, it seems China has satiated its thirst for crude for the time being. In addition to the pulls in supply and demand, we are witnessing a broad-based appreciation of the Dollar. We notice significant declines in the Cable as well as a slight downturn in the EUR/USD and stabilization in the USD/JPY. These catalysts combined with negatively mixed global economic data are driving crude lower towards the psychological $65/bbl level. The ability for crude to base will likely depend on tomorrow’s wave of U.S. economic data, most notably Durable Goods Orders and the Revised UofM Consumer Sentiment numbers. Each release is telling as far as the health of consumption in the U.S is concerned. Any surprise to the downside in tomorrow’s data could drop the S&P futures beneath our important 1st tier uptrend line and knock crude lower. On the other hand, positive economic data would be conductive in helping crude stabilize. Meanwhile, investors should eye the behavior of the Dollar. Further technical setbacks in the major Dollar crosses would place added downward pressure on crude.
Technically speaking, crude’s drop below our previous 1st tier uptrend line and July 30th lows is an important development in our eyes. Crude has likely sacrificed the highly psychological $70/bbl in the process, and investors will now look to $65/bbl as the next psychological play. Crude’s deterioration technically is disconcerting, and could yield a new near-term downtrend if the S&P futures should follow suit. As for the topside, crude now faces multiple uptrend lines, and $70/bbl is serving as a technical barrier now. We are initiating a negative outlook on crude unless the S&P futures should turn and the Dollar depreciate considerably in the wake of tomorrow’s data.
Resistances: $66.84/bbl, $67.13/bbl, $67.52/bbl, $68.08/bbl, $68.74/bbl
Supports: $66.11/bbl, $65.76/bbl, $65.25/bbl, $64.90/bbl, $64.65/bbl
Psychological: $65/bbl, $70//bbl
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