More and more intervention talk to come out of Japan

Per-Erik Karlsson from Avantage Financial GMBH at 10/12/09

S&P 500 futures closed higher by 13.50 points yesterday and buying interest that came in right after the US payrolls release Friday continued to drive equities higher. It traded above the minor 1056 briefly, but fall back rather quickly and more resistance at 1065. The weakness from 17th to 24th of September in the S&P 500 futures still in focus in the background and we are now looking for a low volume up bar (daily) to enter shorts. A break above 1075 would again open for more upside. The stock market is still performing rather well, which we think is a bit overdone in relations to the current economic situation and we continue to look for a slower recovery than what most markets participants have priced in at the moment. However one must keep in mind that the stock market is trading on futures expectations and it can of course be totally out of line with the actual current economical situation for quite long periods of time. Lots of talk about the USD depreciation in the press lately and it seems to be the driver for Gold as well, making a new all time higher yesterday and hitting close to 1050 this morning. Should see some resistance around the 1050 area in gold and expect to see a bit of a correction off that 1050 level given the recent run. The RBA rate hike also seemed to bring more focus to interest rate differentials in the FX markets and we expect this theme to take over more going forward and the risk appetite trade to be more in the background. Also noting that JPY is rather strong this morning again and testing the 88 level vs. USD and 140 level vs. GBP. We still expect JPY to underperform for the rest of the year vs. AUD, CAD and NOK, but we also expect more and more intervention talk to come out of Japan given the recent strength of JPY. Given the weak Japanese economy a strong JPY is not something the Japanese export driven economy wants. At the money option in USDJPY, one month calls are trading at just below 14% volatility at the moment, so looks attractive to add some calls at given the current low volatility, but we prefer to increase the expiration period to give more margin for error. Crude oil is above 71 USD per barrel this morning and technically Crude is still stuck in the 65 to 75 range we have seen since 1st of July and need to break out of this range to bring any more direction. The supply continues to be pretty rich and will be interesting to follow the price reaction after the Crude oil inventories today. Nat Gas futures remains bullish above 4.67 (Monday’s low) and need to see a close above 5.05 to open for a run towards 5.20 (low Dec 08). Saw some supply in Nat Gas yesterday on the short term charts towards 5.10, could be attractive to get short at current levels. Soybeans broke the key support at 892 Friday on sell off in grains, but was unable to move lower Monday and indeed closing up yesterday, looks like buying interest after a false break lower and we are looking for potential longs on low volume pullbacks.

Euro: Long term bullish trend intact above 1.4450 and 1.4840 is still the key resistance ahead of 1.50. A break of either 1.4450 or 1.4840 would open for the next directional move.

Cable: Weak below 1.6115 (former break down level), support down at 1.58

USDJPY: Last week’s low of 88.25 is key support and while above this level we are looking for a move back toward the 93 level and as the repatriation flows back to Japan are done after the half year end closed yesterday, we expect JPY to struggle for the rest of the year.

Swissy: Failed at 1.0453 and back below 1.0280 this morning, key support down at 1.02. Basically 1.02 to 1.0453 range, needs to break either direction for a move directional move.

AUDUSD: 0.8955 high so far, still targeting 0.90, but might face some selling towards the psychological level.

USDCAD: A daily close below 1.06 would target the September 2008 lows around 1.03 followed by parity.

EURJPY: 129.80 remains key support for now and next resistance level is 132.70.

GBPJPY : Got down to 140 Monday last week and traded up above 144 yesterday. A clear reversal pattern on the daily chart after closing above 142 Tuesday last week. We would like to see a break above 145 to get more confident of the move higher. A break below 140 opens for another leg lower.

AUDJPY: Key pivot point is 76.50 and basically medium term bullish outlook intact above this level. Key resistance is 80 today. A break above 80 would open for 82.