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Comprehensive FX and Futures Daily Research

FastBrokers Research Team from FastBrokersFX at 10/23/09


Daily Market Commentary

EUR/USD Retreats with U.S. equities and Broad Dollar Strength

Investors are favoring the Dollar today after Q3 earnings continued to roll in positively, most notably MSFT and AMZN. Furthermore, U.S. Existing Home Sales blew past estimates while Britain’s Prelim GDP printed a shocking -0.4%. Therefore, investors are suddenly favoring the U.S. economy, and are heading towards the Dollar in speculation that the Fed may be able to tighten sooner than anticipated. However, the excitement is a little premature since unemployment remains a thorn in the recovery’s side. Regardless, investors are taking today as an opportunity to liquidate some of their long positions and lock in profits. We notice pullbacks not only in the Euro, but the Aussie, Yen, and gold as well. Naturally, the Pound is the biggest loser today and is highlighted by a pop in the EUR/GBP. However, the Euro is holding up relatively well due to the EU’s positively mixed PMI data.

France continues to outperform Germany, whose Services PMI came in lighter than anticipated. Though Germany’s Ifo Business Climate number also printed a bit weak, the data is altogether encouraging. France’s stellar performance helped drive the EU’s headline Services and Manufacturing PMIs beyond analyst expectations. The EU’s fundamental performance is holding the EUR/USD together despite the large selloff in the Pound. The EU’s fundamental strength should carry over into next week since the union’s econ releases will be light and scattered. The EU will release Germany’s GfK Consumer Climate data on Monday. It’s hard to believe this number will print positively considering Germany’s econ data has been underperforming lately, and consumption is likely feeling the pinch.

Since the EU will have a quiet calendar, investor attention should remain focused on the U.S. and Britain. The U.S. will continue to roll out Q3 earnings along with important econ data, particularly Advance GDP on Thursday. Meanwhile, the S&P futures are having a lot of trouble breaking through their psychological 1100 level. However, any strong movement above could give a boost of energy to the EUR/USD’s uptrend. Therefore, investors should keep an eye on the S&P’s interaction with our uptrend lines and 1100. In terms of Britain, today’s GDP figure is a shocker and has dented investor optimism concerning the global economic recovery. Therefore, Britain’s upcoming econ releases will likely carry added weight. Britain will release its Nationwide HPI and CBI Realized Sales on Tuesday. On the other hand, we have seen the EUR/USD move in a negative correlation against the Cable recently. Hence, underperformance in Britain’s economy doesn’t necessarily mean the Euro will get dragged down with the Pound should its decline accelerate. As a result, investors should pay equal attention to the AUD/USD and gold since the EUR/USD was moving in tandem with these investment vehicles when it exhibited a negative correlation with the GBP/USD.

Meanwhile, the EUR/USD continues to float around its highly psychological 1.50 level. We’ve highlighted the significance of 1.50 in our past commentaries, and it seems growing investor uncertainty in other risk currencies is preventing the EUR/USD from creating topside separation. However, the technicals and fundamentals are still working in favor of the Euro, and all the EUR/USD needs is a little boost before taking off towards 1.55. On the other hand, any underperformance in U.S. Q3 earnings or econ data next week could undermine the EUR/USD’s uptrend.

Technically speaking, the EUR/USD is right around where we left it yesterday. Our makeshift 3rd tier downtrend line and 1.50 continues to serve as the only foreseeable topside barriers separating the currency pair from accelerated upward movements. As for the downside, the EUR/USD has several uptrend lines serving as technical cushions along with 10/22, 10/20, and 10/19 lows.

Present Price: 1.5014
Resistances: 1.5021, 1.5052, 1.5086, 1.5127, 1.5146
Supports: 1.4981, 1.4942, 1.4921, 1.4880, 1.4860, 1.4834
Psychological: 1.50

GBP/USD Plummets Following Surprise Prelim GDP Data

Most of the Cable’s positive technicals were shattered after Britain’s Prelim GDP number shocked investors by printing negative at -0.4% vs 0.2%E. Investors sent the GBP/USD tumbling on strong volume since all of the positive fundamentals from the past two weeks have now been brought into question. Furthermore, investors are now speculating that the BoE will inject more liquidity into its QE package to keep Britain’s economy afloat. This is a complete reversal from recent optimism surrounding King and the BoE’s less hawkish quotes as of late. After all, the last Services PMI number came in strong and the CCC continues to drop. Considering the services industry comprises nearly 70% of Britain’s economy, investors are hopeful the PMI number signifies future strength. Regardless, The BoE’s upcoming monetary policy became even cloudier, and the uncertainty is likely to riddle the Pound until we hear something from Governor King or another high ranking member.

In all, we wonder whether the BoE is playing games with investor mindsets to keep the GBP/USD around par as the global economy repairs itself. We can’t help but notice that despite all of the volatility over the past few months, the Cable is now trading at June 1st levels. Therefore, while China steadfastly keeps the RMB pegged to the Dollar, the BoE appears to be accomplishing this feat via strategic psychological games coupled with intermittent liquidity measures. It’s hard to believe that King and the BoE didn’t see this Prelim GDP number coming when it began shifting towards a more hawkish monetary stance over the past 10 days, sending the Cable flying higher by 1000 basis points. The BoE’s recent comments have allowed today’s negative shock to leave the Cable in a much more favorable technical position than if they had kept quiet. Therefore, investors should look behind future BoE quotes instead of just taking them at face value. In fact, future comments may even give us hints in regards to upcoming econ data releases…

Meanwhile, the Cable has collapsed below the psychological 1.65 level along with our 3rd and 4th tier uptrend lines. The Pounds relative weakness is highlighted by a solid pop in the EUR/GBP. Speaking of which, the EU’s PMI data came in positively mixed. Additionally, U.S. Q3 earnings continue to roll in better than expected and Existed Home Sales surged. Regardless of positive developments in the EU and U.S., today’s collapse in the Cable could carry lasting consequences trend-wise. It will be important for the GBP/USD to hold above our 2nd tier uptrend line and 10/19 lows. Fortunately for bulls, investors will be greeted by more important econ data early next week, beginning with Nationwide HPI and CBI Realized Sales from Britain. Positive econ reports might help the Cable find a bottom and stabilize. However, any further fundamental weakness will make a BoE liquidity injection all the more likely. As for the topside, the Cable suddenly faces multiple uptrend lines and the 1.65 will act as a topside psychological barrier. Our 2nd tier downtrend line serves an important role once again in terms a substantial turnaround in the Cable. Overall, we suggest investors sit on the sidelines before determining just how serious today’s pullback may be in regards to near and medium-term trends.

Present Price: 1.6337
Resistances: 1.6377, 1.6413, 1.6443, 1.6465, 1.6493, 1.6522
Supports: 1.6329. 1.6303, 1.6265, 1.6227, 1.6205, 1.6185, 1.6151
Psychological: 1.65, 1.60

USD/JPY Knocks on the Door of our 2nd Tier Downtrend line

The USD/JPY is contemplating surpassing our 3rd tier downtrend line as U.S. equities selloff and we witness broad-based strength in the Dollar. Britain’s surprisingly negative Prelim GDP figure sent shockwaves throughout the FX community, and the Dollar is benefitting as a result. A combination of positive U.S. Q3 earnings and Existing Home Sales data has given investors renewed confidence in the Dollar and the Fed’s ability to begin extracting liquidity in 2010. These factors, combined with this week’s light Japanese Trade Balance number, have allowed the USD/JPY to extend its gains above the psychological 90 level. However, a lot can change next week since we’ll receive more Q3 results and key econ data from the U.S. and Britain beginning Tuesday. Japan will print econ data of its own next week, including Retail Sales on Tuesday, Prelim Industrial Production on Wednesday, and CPI on Thursday. Additionally, the BoJ will make another monetary policy decision late Thursday night/early Friday morning EST. Therefore, it’ll be a busy week ahead for the Yen and we will see whether the USD/JPY can build its present rally into a more substantial uptrend.

Technically speaking, the USD/JPY’s 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. Besides our downtrend lines, 9/21 highs could serve as a formidable technical barrier should they be reached. That being said, the USD/JPY’s topside obstacles are wearing thin, and an accelerated near-term breakout is becoming more probable. As for the downside, the USD/JPY’s recent run has created several technical cushions, including multiple uptrend lines along with 10/22, 10/21, and 10/20 lows. Additionally, the highly psychological 90 level is now working in the USD/JPY’s favor.

Present Price: 91.90
Resistances: 91.90, 92.03, 92.18, 92.38, 92.51, 92.78
Supports: 91.76, 91.61, 91.48, 91.26, 91.07, 90.79
Psychological: 90

Gold Bounces after Touching $1050/oz

Gold is recovering from earlier losses after edging beneath our 2nd tier uptrend line and tapping its psychological $1050/oz level. Gold was initially hit by the massive selloff in the Cable in reaction to a shockingly negative Prelim GDP release. However, EU PMI data printed positively mixed and gold continues to take its cue from the Euro and Aussie. As a result, gold is holding strong above $1050/oz while continuing its consolidative pattern. We still believe the wedge applies, and we may witness an inflection point once our downtrend line collides with our 2nd tier uptrend line. That being said, gold’s uptrend is alive and well despite uncertainty regarding Britan’s economic fundamentals. U.S. Q3 earnings and Existing Home Sales also came in better than expected today, and increased optimism surrounding the health of America’s economy bodes well for gold’s medium-term outlook due to its negative correlation with the Dollar. Although the Dollar is strengthening today, it’s reasonable to believe that the Euro and Aussie can head higher while the Pound slides. After all, we’ve seen this negative correlation occur only recently.

Meanwhile, attention will remain focused on the U.S. and Britain since we will receive more important econ data early next week in conjunction with the Q3 earnings flow. A recovery in British econ data coupled with more optimistic U.S. numbers would likely accelerate the broad-based devaluation of the Dollar and send gold higher. However, uncertainty has re-entered the marketplace, so investors should be wary of upcoming releases.

Technically speaking, gold’s consolidation is building a solid base should the precious metal decide to head towards $1100/oz. Furthermore, gold continues to set higher lows and has avoided the idea of heading beneath $1050/oz and 10/16 lows. However, it seems gold will reach a breaking point in the near-future, and we will have to wait and see whether the Dollar works in favor of the precious metal. Previous October highs continue to serve as a technical barrier along with our downtrend line. As for the downside, gold has a couple uptrend lines serving as technical cushions to go along with 10/21 and 10/16 lows as well as $1050/oz. For the time being, investors should pay particularly close attention to the EUR/USD’s present interaction with its highly psychological 1.50 level.

Investors will begin looking towards next Tuesday since we’re only a 1/3 of the way through the Q3 earnings season. Additionally, investors will receive more important econ data. On Tuesday the U.S. will release CB Consumer Confidence data and Treasury Secretary Geithner will address the general public. The CB number will be closely watched since the most recent UoM figure disappointed. Investors will also be paying particularly close attention to Britain’s CBI Realized Sales and Nationwide HPI releases. Today’s negative Prelim GDP sent shockwaves throughout the marketplace, and bulls will be looking for some positive data to counter today’s negativity. Britain’s recent Services PMI and CCC releases showed the economy is improving, so more encouraging econ data could soothe investors.

Although we maintain out positive outlook on the S&P futures trend wise, investors should tread with caution since the futures are facing heavy topside psychological headwinds while approaching our important uptrend lines along the psychological 1075 and 1050 levels.

Present Price: $1057.90/oz
Resistances: $1058.75/oz, $1061.40/oz, $1065.15/oz, $1068.06/oz, $1070.66/oz
Supports: $1055.46/oz, $1051.91/oz, $1048.62/oz, $1045.32/oz, $1042.96/oz
Psychological: $1050/oz, $1075/oz, $1100/oz

The S&P Futures Sink Despite Positive Earnings and Data

The S&P futures are heading south as investors sell on the news of more positive Q3 earnings coupled with very strong Existing Home Sales data. However, investors have yet to see a significant improvement in unemployment, and we should keep in mind that both PPI and Building Permits printed below expectations earlier this week. Hence, although Q3 earnings have been impressive, it seems the Fed may have limited ability to drain liquidity over the near-term. Meanwhile, the S&P futures are having a lot of trouble with the psychological 1100 level, and it appears the bulls are a bit worn out. Investors were caught off-guard by the much weaker than expected Prelim GDP data from Britain. The Pound is getting hammered as a result, a negative development for U.S. equities due to their negative correlation with the Dollar. However, the Euro is holding strong after EU PMI data printed positively mixed. Furthermore, the USD/JPY’s rally is heading past 92 while leaving its psychological 90 level behind. We saw U.S. equities move in a negative correlation with the Cable earlier this month, so investors should be paying closer attention to activity in the Euro and gold for the time being.

That being said, the S&P futures are getting uncomfortably close to our 1st and 2nd tier uptrend lines. These uptrend lines run through October lows and should be viewed as important technical cushions. A reversal beneath these uptrend lines could result in accelerated near-term losses towards 1010 and the psychological 1000 level. However, bulls shouldn’t get too worried yet since technicals are still supporting uptrends not only in the S&P futures, but also in the EUR/USD, AUD/USD and gold. After all, a selloff on positive earnings is usually a symptom of overbought conditions. As for the topside, 1100 remains the key technical barrier separating the S&P futures from substantial gains.
Price: 1077.50
Resistances: 1085, 1089.5, 1094.5, 1100
Supports: 1075.5, 1070.5, 1066, 1058.75, 1051
Psychological: 1100, 1075, 1050

Crude Consolidates above $80/bbl Despite Strong Dollar

Crude is holding strong above its psychological $80/bbl level despite briefly dipping below in reaction to the negative Prelim GDP data from Britain. Britain’s shocking data sent the Cable tumbling and resulted in broad-based Dollar strength. Fortunately for bulls, Britan’s GDP is primarily composed of services and not manufacturing. Meanwhile, the EUR/USD, AUD/USD and gold are holding strong, a positive catalyst for crude. We previously noted the importance of today’s EU PMI data. The PMI flashes printed positively mixed and show that the EU’s economic recovery is on track. The outperformance of the Manufacturing PMI helps improve the outlook for aggregate demand for and consumption of crude. In addition to positive news from the EU, U.S. Q3 earnings continue to outperform and Existing Home Sales surged. The rapid recovery in U.S. corporate performance also bodes well for the demand side of the equation. Since investors received light gasoline inventories this week, both the supply and demand sides are working in favor of Crude’s upward trajectory.

Technically speaking, crude’s high volume topside breakout on Wednesday improves the outlook for continued near-term gains. Furthermore, the resilience of crude above $80/bbl is encouraging, and the futures could form a solid base from which to build higher. The only topside technical barriers we see right now are previous October highs, our 3rd tier uptrend line, and the psychological $85/bbl level. That being said, it’s never a bad thing to have an uptrend line serving as a topside technical. As for the downside, crude potentially has multiple uptrend lines serving as technical cushions along with 10/22, 10/21, and 10/16 lows. Additionally, the psychological $80/bbl and $75/bbl should work in crude’s favor. Meanwhile, investors should continue to eye the EUR/USD’s interaction with 1.50 and gold’s struggle with $1050/oz. A breakout in either investment vehicle should yield further gains in crude due to the influence of correlations.

Price: $80.81/bbl
Resistances: $81.02/bbl, $81.50/bbl, $82/bbl, $85/bbl
Supports: $79.84/bbl, $79.39/bbl, $78.38/bbl, $77.74/bbl
Psychological: $85/bbl, $80/bbl, $75/bbl

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