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The market was looking for an increase by 4 bps

Per-Erik Karlsson from Avantage Financial GMBH at 01/12/10


Market Comment

S&P 500 futures printed high of 1148 yesterday in early morning trading, but fell back once the US markets opened and traded lower to close at 1039.50. This was only the 2nd Monday of the last 8 trading Monday’s that was negative. The previous negative Monday was 7th of December. Actually yesterday’s reversal in the S&P 500 futures after a gap up on the open triggered a sell signal on one of our proprietary charting systems. So we are looking to get short the S&P 500 futures if we see the right confirmation signal over the next week or so. The earnings out from Alcoa after the close yesterday was slightly on the weak side and S&P 500 futures are down about 7.50 points this morning. However the big news playing on the market this morning in the news that China has tighten monetary policy in the Asian session. People’s Bank of China raised its auction rate on the 1 year bill by 8 bps. The market was looking for an increase by 4 bps, so they surprised on the upside by doubling the market expectations. The action taken by PBOC was to stem the rising leading that was seen in December and they are concerned about possible “Bubble” in the real estate market. The Chinese stock market still managed to close up almost 2% on the day this morning. Crude oil failed at the 84 USD per barrel yesterday and fell over 2 USD off the highs so far, looks like a potential short in Crude too as we outlined yesterday, the rally towards 84 offered a very good risk to reward trade. The 84 USD level is the October 09 high and a break above this level by 20 cents or so would likely trigger some stops. Nat Gas moved down considerably yesterday and is now approaching the key 5.35 support level (27th of Nov high) that we have been looking for a test of over the last week or so. The weather reports suggest that warmed weather will most likely come into the US later this week, which is weighing on Nat Gas prices. The inventory levels in both Crude and Nat Gas are high and widening contango in Crude over last few days is not good for Crude prices in the long run as the supply that is put on storage have to come back to market sometime in the future, meaning the supply is still there in the background., which was the prior resistance before the last reaction high before the latest rally. Gold is once again trading very bullish breaking above 1143, opens for a run towards 1176. The test of the 1075 level was successful, which should provide strong support in the background. USD holding its ground this morning and the momentum of the USD sell off from yesterday looks gone this morning at least. We have seen a few Banks suggesting to use this USD weakness to buy into and go short for example GBPUSD. Maybe for a short term trade something to look at? The JPY is somewhat getting a bid after some profit taking on the big run from 85 USDJPY towards 94. Longer term resistance levels in USDJPY, 94.37 is the key level to watch for now. However any stronger JPY rally should be viewed as another selling opportunity in our opinion. The rumor of the Japan Airlines further underlines the weakness of the Japanese economy and we have seen several analysts’ voice concern over the high public debt in Japan and the chance the Japan will face problems funding the debt in the future. We repeat a comment excerpt from our report yesterday that we would like readers to read again: Fed’s Bullard said the main challenge for U.S. policy makers will be to adjust the asset-purchase program without stoking inflation and still remain supportive of economic growth. We fully agree and it will certainly be a tough job for the Central Banks going forward to fine tune the policy. We would not be surprised if most Central Banks will be more focused on growth than inflation in the near future and as growth picks up we expect that most of the CB’s will fall behind the curve on inflation.

FX Implied Volatility updated this morning:
Volatility ATM options1w1m3m

Some interesting news stories:


Euro: Broke the key resistance at 1.4480 overnight that opens for a run higher or at least put a halt to the recent bearish trend. Have reaction low from 3 Nov 2009 (1.4625) that should provide some resistance if it get up there. Friday’s low of 1.4262 should is now support.

Cable: Held at 1.5895 last week, which gives a higher lower than previous week. That is bullish in itself, but would like to see a daily close above the interim falling resistance at 1.6120 to declare it bullish, which it was not able to do yesterday, but while above 1.6000 it still has bullish potential.

USDJPY: We see longer term falling trend line coming in at 94.37, which is still the key level to break to open for a stronger run higher. We expect sellers to use this level to look for a correction on the strong run from the 85 at 27th of Nov 09. Longer term we still expect JPY to underperform due to high public debt, weak demographics and tougher export markets due to slower growth going forward.

Swissy: Broke below 1.02 level overnight, which has held as support for the last month. That is bearish and opens for a test of 1.00 level near term.

AUDUSD: Interim rising support coming in at 0.9106 today and outlook is bullish above this trend line with key resistance up at the Nov 09 high of 0.9405.

USDCAD: Following a weaker than expected Canadian Unemployment report Friday the USDCAD tested 1.04 pivot level, but never broke. Still expect the 1.04 to continue to be a main pivot level in the near future. So while below the 1.04 level it remains bearish. Key support is down at 1.0205 (low from October 09) and this support level was tested yesterday, but was not able to break it yet and bounced higher. Watch 1.04 carefully as a break higher could see stops go.

EURJPY: Bullish momentum intact above 131.24, next key resistance level is last reaction high at 134.56 (Dec 2009 high)

GBPJPY : All over the place lately, but bullish above 146, with strong resistance up at 151.

AUDJPY: Still trading inside the Rising trend channel from 13th of July with support down at 78.28 and overhead resistance at up at 88.29.


Our outlook
PairOur strategy TodayOur medium term forecast
EUROBullish above 1.4280, looking for 1.4620 Looking for test of 1.46
CableBullish for a test of 1.6235 this weekNegative outlook for GBP longer term
USDJPYProfit taking as 94.35 level held, 90.70 should provide support and looking enter long down there if possibleTest of 94.42
USDCAD1.04 is pivot level, bearish below, sell rallies Test of 1.02 next 4 weeks
EURJPYBullish momentum above 130.70, buy dipsOur 133.70 target reached
AUDJPYExpect more JPY weakness and AUDJPY should head higher85 target hit
GBPJPYBullish above 146, looking for 151 test again 153 target hit, stand aside
AUDUSDLooking for test of 0.9405Test of 0.9405

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