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Comprehensive FX and Futures Daily Research

FastBrokers Research Team from FastBrokersFX at 12/04/09


Daily Market Commentary

EUR/USD Drops as U.S. Equities Pop

The EUR/USD experienced a sizable leg down below the psychological 1.50 level after U.S. employment data made a big step in the right direction. What’s most interesting about the activity today is that we’ve witnessed the Dollar’s negative correlation with U.S. equities flip pre-market after key U.S. econ data printed positive. Therefore, investors should keep their eyes on the reversal in correlation to monitor whether the reverse relationship persists. Meanwhile, although the ECB kept its benchmark rate unchanged, the central bank removed its grip on rate fluctuations, thereby allowing interest rates to adjust with future increases to the benchmark rate. Hence, the ECB is getting its house in order ahead of the future tightening of EU monetary policy. However, the central bank did not specify a timeline in terms of when they will initiate the tightening process. The lack of timeline from the ECB may be why the Euro is exhibited a relative weakness this morning, as highlighted by a pullback in the EUR/GBP. ECB president Trichet will address the general public on Monday, possibly providing further insight in regards to the central bank’s monetary policy plans. Additionally, the EU will release German Factory Orders, which are expected to decline by 3 basis points to 0.6%.

Technically speaking, the sudden reversal in correlation between the Dollar and equities is the big story so far today. If the U.S. economy continues to strengthen, particularly in unemployment and consumption, the positive correlation between the Dollar and equities may continues. However, despite the current downturn in the EUR/USD, the currency pair is still trading well above 11/27 lows along with our 1st and 2nd tier uptrend lines. Therefore, the EUR/USD’s near-term uptrend is still intact, meaning investors should monitor whether the currency pair returns to its positive correlation with the S&P futures as today’s trading session progresses. As for the topside, the EUR/USD faces multiple downtrend lines and the psychological 1.50 level may work against the currency pair once again.

Present Price: 1.4955
Resistances: 1.4965, 1.4989, 1.5000, 1.5022, 1.5045, 1.5063
Supports: 1.4938, 1.4928, 1.4904, 1.4882, 1.4868, 1.4842
Psychological: 1.50, November Highs and Lows

GBP/USD Fluctuates as U.S. Equities Charge Ahead

As with the EUR/USD, the GBP/USD experienced an initial negative reaction to the surprisingly positive employment data from the U.S. However, the Cable has nearly recovered losses, and investors are debating where to send the currency pair as U.S. equities charge ahead to fresh 2009 highs. The negative reaction to another set of positive U.S. employment data is very interesting. We noticed a broad-based strengthening of the Dollar after the news hit the wires, indicating a possible reversal in correlation between the Greenback and equities as the U.S. economy outperforms. After all, the Fed previously implied that the central bank would not feel comfortable raising the benchmark rate until unemployment declines. Although the drop from 10.2% to 10% isn’t necessarily the beginning of a long-term reversal, it’s still a good start. Meanwhile, gold is dropping and the USD/JPY rising, indicating a broad-based preference for the Dollar. The Pound is exhibiting a relative strength as exhibited by a pullback in the EUR/GBP. The Pound’s resilience likely stems from BoE Chief Economist Dale stating that the UK economy has turned a corner. The psychological impact from Dale’s economic reassurance is probably the cause of the Sterling’s strength since Britain’s PMI data missed analyst expectations earlier this week.

Technically speaking, our 4th tier uptrend line and 1st tier downtrend line are reaching their inflection point today, implying the possibility of a pop in volatility. Speaking of trend lines, the Cable is wedged perfectly between our uptrend and downtrend lines, suggesting the currency pair is trading at a crossroads right now. As for the downside, the Cable has multiple uptrend lines serving as technical cushions along with 11/30 and 11/27 lows. As for the topside, the Cable faces multiple downtrend lines along with 12/03 and 11/25 highs. Our 4th tier downtrend line could prove to be a key topside technical since it runs through November highs.

Meanwhile, investors should actively monitor the Dollar’s correlation with U.S. equities to see if today’s reversal in correlation persists should U.S. equities surge higher on the back of positive employment data. Britain will keep off the week with HPI data on Monday. However, investors will likely focus on public addresses from Trichet and Bernanke later in the trading session.

Present Price: 1.6610
Resistances: 1.6644, 1.6673, 1.6705, 1.6730, 1.6748, 1.6790, 1.6842
Supports: 1.6571, 1.6543, 1.6498, 1.6461, 1.6413, 1.6377, 1.6338
Psychological: 1.65, November Highs and Lows

USD/JPY Surges Towards 90 on Positive U.S. Data

The USD/JPY is experiencing a topside breakout in reaction to much better than expecting U.S. employment data. The prospect of an improving U.S. employment market is sending the S&P futures higher in conjunction with broad-based Dollar strength. Although we’ve yet to determine whether the reversal in correlation between the Greenback and U.S. equities will be lasting, it’s an intriguing development nonetheless. The USD/JPY seems to be benefitting the most from today’s turn of events. The currency pair has surged towards its highly psychological 90 level and we’ve had to readjust all of our technical levels and trend lines to compensate for today’s activity.

The USD/JPY is likely thriving due to a combination of factors. First, the BoJ’s decision to free up 10 trillion Yen worth of loans to commercial banks at the benchmark rate already added a sense of a loosening monetary policy at the central bank even though the decision wasn’t so well received by analysts. Meanwhile, today’s encouraging improvement in U.S. unemployment implies an increase in consumption down the road, thereby benefitting Japanese exports. As a result, investors are snapping up the Dollar over the Yen as we’ve witnessed in stronger economic times. Lastly, the USD/JPY is also enjoying the Dollar’s broad-based strength since a reduction in U.S. unemployment could pave the way for future interest rate hikes or a tighter monetary policy in general from the Fed. Japan will release its final GDP next Tuesday and the DPJ is preparing a stimulus package to help buoy the nation’s economy. Therefore, volatility could remain at a heightened state next week.

Technically speaking, today’s pop in the USD/JPY is certainly an encouraging development for the currency pair’s uptrend. However, the USD/JPY must now face it’s highly psychological 90 trading range it has had so much trouble with in the past. Therefore, the USD/JPY could hit some sizable resistance relatively soon. That being said, the USD/JPY still faces multiple downtrend lines along with 11/12 and 11/04 highs. Our 3rd tier downtrend line appears to carry the most weight since it runs through October highs. As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with 11/19 and 12/03 lows.

Present Price: 89.65
Resistances: 89.85, 90.04, 90.26, 90.38, 90.58, 90.73, 91.00
Supports: 89.55, 89.37, 89.19, 88.99, 88.84, 88.61
Psychological: 90, November and October Highs

Gold Sinks Below $1200/oz

Gold has dropped back below its highly psychological $1200/oz after another set of encouraging U.S. employment data. Gold has reacted negatively to the positive U.S. news as the Dollar experiences broad-based strength and the S&P futures pop. The reversal in correlation between the Greenback and equities is the key story right now, and the positive correlation is having a negative impact on gold since the precious metal is normally positively correlated with the Dollar. Furthermore, gold has been overdue for a pullback following its incredible run. That being said, gold is still trading above December lows and our multiple uptrend lines. Therefore, gold’s uptrend is intact regardless of present weakness. However, investors should closely monitor the Dollar’s correlation with U.S. equities since a positive correlation between the two could result in further weakness in gold.

Meanwhile, investors should also eye the EUR/USD’s interaction with key supports should they be tested as well as the USD/JPY’s topside breakout. An extension of both trends could continue to have a negative impact on gold. Technically speaking, as we mentioned previously gold still has multiple uptrend lines serving as technical cushions along with 12/1, 11/30, and 11/27 lows and the psychological $1150/oz level. As for the topside, the psychological $1200/oz level may now serve as a topside barrier along with 12/2 and 12/3 highs.

Present Price: $1189.60/oz
Resistances: $1189.65/oz, $1194.94/oz, $1198.87/oz, $1202.74/oz, $1209.64/oz, $1216.59/oz
Supports: $1183.65/oz, $1180.14/oz, $1174.51/oz, $1168.38/oz, $1163.89/oz, $1157.76/oz
Psychological: $1200/oz, $1150/oz, 2009 Highs

Crude Consolidates as Dollar Moves with Equities

Crude futures are deadpanning around $77/bbl as investors react to another set of encouraging U.S. employment data. The Dollar is experiencing broad-based strength as U.S. equities pop. The reversal in correlation is the technical story of the day, although it remains to be seen whether we’re witnessing a lasting reversal in correlation. A rally in the Dollar is a negative development for crude since it potentially reduces demand stemming from an attractive import price for foreign nations because crude is a Dollar-denominated commodity. Meanwhile, the decline in unemployment implies greater domestic consumption of and demand for crude, a positive catalyst for the futures. Therefore, it seems crude is debating whether to correlate with a strengthening Dollar or rising equities. It will be interesting to see how the correlations behave as the session progresses. That being said, crude has tended to exhibited a stronger correlation with the Dollar than equities this year.

Technically speaking, crude has 12/3 and 11/27 lows serving as technical cushions along with the psychological $75/bbl and $70/bbl levels should they be tested. As for the topside, crude faces multiple downtrend lines along with 12/2 and 11/23 highs. Furthermore, the $80/bbl area could continue to serve as a heft topside psychological barrier.

Meanwhile, investors should monitor the EUR/USD’s interaction with our uptrend lines and key technical supports as the currency pair’s selloff picks up steam. However, should U.S. equities continue to strengthen despite a rising Greenback crude could remain within a reasonable trading range despite today’s high volatility in the FX markets.

Price: $77.23/bbl
Resistances: $77.87/bbl, $78.33/bbl, $78.61/bbl, $79.07/bbl, $79.51/bbl, $79.93/bbl
Supports: $77.18/bbl, $76.80/bbl, $76.23/bbl, $75.80/bbl, $75.53/bbl, $75.11/bbl
Psychological: $80/bbl, $75/bbl, $70/bbl

S&P Futures Pop with Positive Employment Data

The S&P futures are popping in reaction to positive Non-Farm Employment Change and Factory Orders data. Furthermore, the headline U.S. Unemployment Rate printed 2 basis points below analyst expectations (10% vs. 10.2%E). Since a troublesome employment market has been a thorn in the side of the economic recovery, the combination of today’s data with yesterday’s dip in Unemployment Claims is a very encouraging development in regards to the sustainability of the recovery. U.S. equities are understandably reacting positively to today’s news. However, the Dollar has reversed its correlation with equities and is experiencing broad-based strength. The USD/JPY has shot towards 90 while the EUR/USD sinks below 1.50 towards our 1st and 2nd tier uptrend lines. Gold is flexing its negative correlation with the Dollar, dropping back towards $1175/oz. Today’s rally in the Dollar likely stems from the belief that the Fed may be able to tighten its monetary policy sooner than anticipated. The Fed has consistently expressed that it will likely refrain from tightening the money supply until the employment market turns a corner. Although this week’s data isn’t a certain signal that unemployment has bottomed, it is a good start. That being said, the Dollar is logging sizable gains while the S&P futures look to extend intraday gains. The reversal in correlation is a noteworthy development and should be monitored closely.

Technically speaking, the S&P futures have limited near-term topside technical barriers in the form of 12/3 and intraday highs. As for the downside, the S&P futures have 11/30 and 11/27 lows serving as technical cushions along with the psychological 1100 and 1075 levels. Meanwhile, investors will be looking forward to Fed Chairman Bernanke’s public address on Monday in terms of clarifying where the Fed now stands in regards to its upcoming monetary policy considering the latest positive development in the U.S. employment market.

Price: 1114.50
Resistances: 1114.5, 1119.5
Supports: 1106, 1100.25, 1096, 1089, 1083.75, 1075.75
Psychological: 1100, 1075, 2009 Highs, 1125

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