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Comprehensive FX and Futures Daily Research

FastBrokers Research Team from FastBrokersFX at 10/26/09


Daily Market Commentary

EUR/USD Consolidates Around 1.50

The EUR/USD is continuing its consolidation around the highly psychological 1.50 mark after Germany’s Consumer Climate number came in weak as anticipated. Despite the miss, the EUR/USD is showing little reaction since today’s data reading could be just a bump in the road to improvement and doesn’t confirm a material slowdown. Psychologically, the Euro is getting a bit of support today after a Chinese official released a statement implying that it would be in the country’s best interest to diversify more of its reserves away from Dollars towards the Euro and Yen. While the official did reiterate the Dollar’s prevalence as the global monetary standard, his comments nonetheless support China’s waning confidence in the Greenback. However, the Yen is actually weakening this morning, and it remains to be seen whether this news will have a noticeable impact on the Dollar.

Today’s session will be light on the data front, meaning prevailing near-term trends may play through. Although the EU will be releasing its M3 Money Supply number tomorrow, investors will likely be paying closer attention to British and U.S. data points. Britain sent a shock through the FX markets last week after printing a Prelim GDP figure 6 basis points weaker than expected (-0.4% vs 0.2%E). Britain’s GDP number rattled investor confidence. Therefore, investors will likely be paying close attention to tomorrow’s CBI Realized Sales data. However, it’s difficult to expect positive Realized Sales numbers tomorrow considering the last two Retail Sales releases have come in flat at 0% growth. On the other hand, outperformance of tomorrow’s release could provide a bit of relief to investor anxiety and help buoy the Pound. As for the U.S., investors will receive CB Consumer Confidence along with some S&P HPI data. More strong U.S. data could drive the Dollar lower and help the EUR/USD create a little separation from 1.50.

Meanwhile, the Euro has regained its footing against the Pound, signified by Friday’s solid pop in the EUR/GBP. Britain’s surprisingly weak Prelim GDP figured has reignited speculation that the BoE will keep the liquidity window open. However, it will be interesting to see if the ECB reiterates its desire for a stronger Dollar this week. For the time being 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 considering the lack of topside technicals all the EUR/USD may need 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 last week. Our makeshift 3rd tier downtrend line and 1.50 continue 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. Therefore, while the EUR/USD has seemingly hit at wall at 1.50, near-term technical supports appear to outweigh resistances, normally a positive sign.

Present Price: 1.5030
Resistances: 1.5052, 1.5086, 1.5127, 1.5146, 1.5183
Supports: 1.5013, 1.4981, 1.4942, 1.4921, 1.4880, 1.4860
Psychological: 1.50

GBP/USD Stabilizes along our 2nd Tier Uptrend Line

The GBP/USD has balanced along our 2nd tier uptrend line after getting pummeled on Friday. Britain’s Prelim GDP data printed 6 basis points below analyst expectations (-0.4% vs 0.2%), shocking investors and igniting speculation that the BoE will keep its QE package open. This sentiment contradicts recent optimism garnered from strong Services PMI and CCC data points. However, investors should keep in mind that the Cable’s incredible run from 10/13-10/23 was provoked by a more neutral monetary stance emanating from the BoE. Therefore, one can only speculate how the BoE will approach its monetary policy over the near-term. As we explained in our previous post, there’s a chance the BoE changed its tone in advance to Prelim GDP data to help put the Pound in a more favorable position once the news hit the wire. Regardless, the BoE will likely continue its psychological tango with investors to move the Cable in a direction it deems appropriate for Britain’s economy.

Investors will receive more heavily-weighted econ data from Britain tomorrow with the release of CB Realized Sales. A positive consumer-oriented release could help stem the bleeding and allow the Cable to right itself. However, it’s difficult to imagine tomorrow’s CB number coming in ahead of expectations since Britain’s last two Retail Sales numbers have flat lined (0%). Regardless, investors will be keyed in since Friday’s GDP number has put the spotlight on Sterling for the time being. The U.S. will be releasing important econ data of its own, including HPI and CB Consumer Confidence figures along with a public address from Treasury Secretary Geithner. Activity in the U.S. will only heat up as the weak progresses with Durable Goods and New Home Sales tomorrow along with Advance GDP on Wednesday. The S&P futures haven’t been able to break through 1100 time and again. The S&P’s resistance at 1100 has been a problem for the Cable since the two are positively correlated. Therefore, the performance of upcoming U.S. data and Q3 releases should have a noticeable, broad-based impact on the Greenback. On the other hand, the Cable has had a mind of its own this Autumn, showing its direction ultimately relies upon the BoE’s perceived monetary policy.

Technically speaking, the Cable is suddenly facing four fresh downtrend lines and 1.65 is serving as a psychological barrier once again. The GBP/USD’s last run topped out beneath 9/11 highs, meaning the currency pair has its work cut out for it to the topside since a reversal into a longer downtrend isn’t out of the question. As for the downside, the Cable has managed to avoid a retest of 9/21 lows thus far. Our 2nd tier uptrend line should play an importance role in preventing such an occurrence. Meanwhile, though far away, the Cable still has our 1st tier uptrend line to fall back on along with the psychological 1.60 level and previous October lows should the situation deteriorate further. Therefore, the Cable’s uptrend is salvageable as long as near-term technical cushions hold up.

Present Price: 1.6341
Resistances: 1.6366, 1.6391, 1.6413, 1.6445, 1.6467, 1.6493
Supports: 1.6329, 1.6295, 1.6265, 1.6247, 1.6227, 1.6205, 1.6185
Psychological: 1.65, 1.60

USD/JPY Consolidates with an Upward Bias

The USD/JPY is consolidating around our 2nd tier downtrend line while maintaining its upward bias from last week. Positive U.S. Q3 earnings and econ data have given investors renewed faith in the U.S. economy as a whole, allowing investors to feel more comfortable with the USD/JPY risk trade. By sending the USD/JPY higher last week, investors are showing their support for the belief that the Fed will be able to raise rates before the BoJ, making the Yen the preferred funding currency once again. The USD/JPY has successfully created some breathing room between present price and the psychological 90 level while knocking down a few downtrend lines. However, the currency pair still faces quite a few topside technical barriers to overcome considering the extent of its pullback from August highs.

Investors will get a better idea of the BoJ’s current monetary stance towards the end of the week when the central bank makes its scheduled policy decision late Thursday/early Friday EST. The recent upturn in the USD/JPY supports the BoJ’s more hawkish monetary stance. Therefore, analysts are expecting the BoJ will stick to its tighter approach towards monetary policy considering the USD/JPY is back above 92. Japan will roll out a couple econ releases between now and then, including Retail Sales late Tuesday EST followed by Prelim Industrial Production late Wednesday EST. While investors are expecting an improvement in Retail Sales due to the appreciation of the Yen, Prelim Industrial Production should carry more weight since Japan’s economy is export-focused.

Technically speaking, the USD/JPY’s potential 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 10/23, 10/22, 10/21, and 10/20 lows. Speaking of which, this set of higher lows is normally a positive technical sign trend-wise. .

Present Price: 91.90
Resistances: 91.93, 92.05, 92.18, 92.38, 92.51, 92.67
Supports: 91.70, 91.57, 91.41, 91.19, 91.08, 90.88
Psychological: 90

Gold Continues to Fluctuate Within a Converging Wedge Pattern

Gold has highlighted the relevance of the wedge pattern we spotted last week by bouncing off of our 2nd tier uptrend line once again. Meanwhile, our downtrend line is gradually converging with our 2nd tire uptrend line, implying gold may wake from its consolidative slumber soon. Fortunately for bulls, gold continues to set higher lows while hinting at a topside preference by continually resisting a noteworthy retreat below the highly psychological $1050/oz level. All eyes remain on the Dollar, particularly the Euro and Aussie crosses. Gold has seemed to follow the EUR/USD and AUD/USD more closely than the GBP/USD and USD/JPY due to the erratic behaviors of the BoE and BoJ, respectively. Therefore, investors should eye the EUR/USD’s ability to move higher and create some space between present price and the currency pair’s psychological 1.50 level. We notice a similar consolidative pattern in the AUD/USD, so investors should watch to see if the currency pair can break above its own October highs. A breakout in either major cross could result in a similar movement in gold.

Meanwhile, the S&P futures are in a topside battle of their own. The S&P has had a lot of trouble breaking through its psychological 1100 level. A large movement above 1100 in the S&P would likely come with a broad-based depreciation of the Dollar, thereby pushing gold higher due to correlative forces. As a result, investors should pay attention to the S&P’s reaction to upcoming Q3 earnings reports and econ data releases, most notably tomorrow’s CB and HPI data along with Wednesday’s Advance GDP and Durable Goods numbers. That being said, the presence of key econ and earnings releases among key psychological levels across the board presents the opportunity for high volatility should results steam in either highly positive or negative.

In terms of technicals, the topside barriers remain our makeshift downtrend line along with previous 2009 highs and the psychological $1075/oz and $1100/oz levels. As for the downside, the psychological $1050/oz level continues to serve as an important technical cushion along with our 1st and 2nd tier uptrend lines.

Present Price: $1058.50/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 Extend Friday’s Losses Amid New Legislation

The S&P futures have reversed from earlier gains after the U.S. government announced it will release its proposed legislation for the finance industry. Initial reaction to some of the headlines is negative as the government proposes means of reducing the systemic impact of too big to fail institutions while potentially decreasing the influence of the Federal Reserve. In addition to the news of new legislation, Bove downgraded three more banks, including USB, FITB, and STI. Financials are getting hammered in reaction to the combination of these events, and the U.S. markets are following their lead. As a result, 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 potentially result in near-term downward movements towards 1010 and the psychological 1000 level. Therefore, investors should keep a close eye on the S&P futures for any significant destruction in regards to technical supports.

Meanwhile, today’s downturn in U.S. equities places more weight on upcoming economic data. Though data is quiet today, the wires will heat up tomorrow with the release of CB Consumer Confidence and HPI data. On Wednesday investors will receive key CDGO data along with New Home sales, not to mention Thursday’s release of Advance GDP. Therefore, we should be headed for a busy trading week, to say the least. While the S&P futures have been buoyed by surprisingly positive econ and Q3 data, any negative reversal in economic fundamentals could result in the accelerated losses we mentioned before. On the other hand, positive releases could provide a much needed boost to an S&P which seems to be trending lower.

Price: 1071
Resistances: 1076.5, 1082.75, 1088.75, 1094.5, 1098.25
Supports: 1070.5, 1063.25, 1056.25, 1049
Psychological: 1100, 1075, 1050

Crude Consolidates above $80/bbl Despite Strong Dollar

Crude futures bounced off of our 1st tier uptrend line and continue to hold strong above the $80/bbl level. We notice similar strength in gold above $1050/oz and the EUR/USD above 1.50. Therefore, the bulls are fighting to keep the upward momentum going. Today OPEC announced it would increase production should crude hit $100/bbl again. As a result, OPEC has created a near-term ceiling for crude should near-term gains accelerate. Meanwhile, investors are digesting news that MEND, a Nigerian militant group, has agreed to another cease fire with the Nigerian government to make way for further negotiations. MEND is notorious for attacking Nigerian oil facilities in the hope of distributing profits from crude production more evenly throughout the country. The Nigerian government may be more willing to negotiate with MEND this time around since the government is courting China to invest billions in the country’s crude industry. China desires a more stable production environment in Nigeria, giving the Nigerian government more initiative to strike a deal with MEND. The ceasefire is a negative catalyst for crude since it implies fewer disruptions in production and the potential for an increase in aggregate supply. However, the MEND ceasefire will likely prove to be more of a drag on price rather than delivering a large, noticeable impact.

Fundamentally speaking, the improvement in U.S. and EU data points along with positive Q3 earnings have helped fuel crude’s recent run beyond $80/bbl. Encouraging corporate performance and the increase in manufacturing production brings hope that the demand side of crude is getting back on track. Furthermore, the recovery of the global economy has driven the Dollar lower, making Dollar-denominated commodities such as crude a more attractive import. However, near-term headwinds exist in U.S. equities, most notably the S&P’s struggle with 1100. Any substantial setback in U.S. equities could deliver a blow to crude futures since the two are ultimately positively correlated. Therefore, investors should keep an eye on econ data coming across the wire over the next couple trading sessions. Of particular notice will be tomorrow’s CB Consumer Confidence number along with Core Durable Goods on Wednesday. Both releases give investors a good idea of the health of the American consumer and influence investor expectation of future demand for crude.

In terms of technicals, it will be important for crude to stick around $80/bbl. While the futures face limited topside barriers in the form of 10/22 highs and $85/bbl, crude has been on quite a run and some profit taking would not be out of the question. That being said, investors should note the last large volume we witnessed was to the topside on 10/21, meaning the uptrend is still in place. As for the downside, crude futures have technical supports in the form of our two uptrend lines and $80/bbl along with 10/21 and 10/16 lows.

Price: $80.88/bbl
Resistances: $81.30/bbl, $81.62/bbl, $82/bbl, $85/bbl
Supports: $80.44/bbl, $79.84/bbl, $79.39/bbl, $78.38/bbl
Psychological: $85/bbl, $80/bbl, $75/bbl

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