• Online Forex trading Community

Japan has really weak looking fundamentals with ageing population

Per-Erik Karlsson from Avantage Financial GMBH at 11/12/09


Market comment

S&P 500 futures trade above the 1100 resistance level this morning and thereby making a new yearly high. Still a bit too early to call the breakout as the close of today’s price is vital to evaluate the strength in the market. That being said the run up to 1100 over the last few days gives a bit of mixed signals with the volume not really at the levels we would like to see them for a stronger breakout, meaning we remain a bit cautious until we see a daily close above 1100. As mentioned over the recent days we would like to see a strong punch through this 1100 level to force stops and avoid selling from longs to get a successful break out. Lots of talk about Gold last weeks and it made another new high this morning testing 1118 this morning, which is the overhead resistance, being the 75% quartile of the current rising trend channel. A close above 1118 would bring Gold into overbought levels per our trend channel definition. Lots of Speculation that China will buy the rest of the IMF gold quote for sale after the India deal was announced. That is not unlikely in our opinion.
Some speculation that Central banks might return to being net buyers of Gold after 18 years as net sellers. Volatilities in equities and FX options have dropped substantially over the last 3 sessions as risk appetite is back in full force. Seems like 30 level in the VIX is a tough resistance level and it has basically failed to trade above this level for any longer period of time since this summer and we expect a move back towards 20 or so over the next sessions, however at 20 we would once again looking to get long on VIX. In currencies it was range bound in Asia after an initial rally in risk appetite following better than expected Chinese economic data, however it reversed a bit later when Chinese lending figures came in lower than expected. More talk on Yuan overnight as Obama has put the Yuan on the agenda for his upcoming meeting in Beijing next week. We suspect China will resist any major Yuan revaluation until the export figures fully recovers. It is probably not so easy for US to argue that much with China since US is very dependent on the credit from China and China holds about $2trn in reserves. We generally think JPY has limited scope for a very strong rally as BOJ will most likely step in and prevent the JPY from moving much below 87 vs. USD. Remember that Toyota was out last week saying that if JPY got stronger they had to move their production abroad. We can mention it again as we have done over the past few months, Japan has really weak looking fundamentals with ageing population, weak domestic spending, huge public debt and now a strong JPY. That is not a good mix to have in our opinion and it is unlikely that JPY can sustain a substantial rally when the fundamentals are that bad. It is normally that JPY benefits from risk aversion and we don’t want to step against that trend just yet, but at lower levels in both AUDJPY and EURJPY we would favor longs. We expect AUD to continue to perform strongly and dips to be supported as other Central Banks are still clearly behind RBA in the tightening cycle. GBP getting sold heavily this morning following the UK Quarterly inflation report, which generally stated a prolonged period of of low interest rates going forward and no clear indication when the QE will be taken off. Comments out from RBNZ that the current NZD strength is unsustainable. We agree and are once again looking to get short in NZD vs. a basket of AUD, EUR and CAD. Crude continues to struggle to get above 81 USD per barrel level and we favor selling rallies for move back towards the 77.50 support level. Pretty much bearish figures out from USDA raising output forecasts for both Soybeans and Wheat, but prices continue to hold above the support levels tested last week. We are looking for short entries in Wheat, but prefer higher levels to get short.

Some interesting news stories:


Euro: Bullish momentum intact above 1.48 and key resistance remains the yearly high at 1.5060. Higher equities could pull along Euro towards the 1.5060 level where we expect stops to be lurking.

Cable: Failed above 1.67 on a few occasions since September. We still think the GBP will underperform EUR for the rest of the year and EURGBP long on dips looks attractive.

USDJPY: Has been trading inside the falling trend channel since March 09, with overhead resistance at 92.30 and support at 86.88. We see limited scope for JPY to go below 86 and favor longs on dips, however need a daily close above 92.50 to really open the upside.

Swissy: Bearish below 1.02 and need to break 1.00 to extend the drop.

AUDUSD: Still trading inside the rising trend channel that has been in place since 13th of July 09. The rising support of this trend line is down 0.8980 today with overhead resistance at 0.9518.

USDCAD: Bearish below 1.09 and this level held the rally, key support down at 1.02.

EURJPY: Struggling to stay above the 135 level and looks more range bound inside the key resistance of 138.72 and support down at 131 (2 Nov. low).

GBPJPY : Key levels remains 147 support and 153.30 resistances. Technically bullish above 147.

AUDJPY: AUD is strongly correlated to equities. We expect the direction in equities to drive AUD as well. Keep an eye on US nonfarm payrolls for direction.


Our outlook
PairOur strategy TodayOur medium term forecast
EUROBullish above 1.48Our 1.50 year-end target reached
CableDid test the 1.67 as expected. Looks like a lot of supply on approach of 1.68, so favor 1.66 to 1.68 rangeNegative on both GBP and USD
USDJPYLooking for a test of 92.50 over next 3 weeksweaker JPY, 100 or higher by year end
USDCADBearish, strong supply towards 1.09, watch oil prices and M&A rumors for direction as wellReached our target of 1.0350
EURJPYGood bounce off 131 support, bullish for a test of 135.80140 level within 3 months
AUDJPYOur target at 82 reached, watch S&P for direction85 target hit
GBPJPYKey support is 147.10 and key resistance 152, play range153 target hit, stand aside
AUDUSDBullish above 0.8980 rising support95 within 4 weeks

Main Menu