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We also note that Gold tested the previous key support 1075 overnight

Per-Erik Karlsson from Avantage Financial GMBH at 02/09/10


Market Comment

Very interesting bar on daily chart Friday in the S&P 500 futures with daily record volume this year and the highest volume day seen since 21st of November2008. The bar closed way off the lows as prices reversed strongly towards the end of the session. This certainly signals that is was a lot of buying in that bar, otherwise it was no way it could have rallied that strongly off the lows. We now look for this bullish action to be confirmed today with an up bar. Key support is now Friday’s low (1040.75) and the 23,60% Fibonacci retracement of the March 09 to January 2010 coming in at 1031.
Key resistance remains 1103. We also note that Gold tested the previous key support 1075 overnight, now the level should act as resistance and basically looking weak below this level. The debt problems continue to weigh on the market and Euro is of course center stage with Greece and potential more problems in Portugal. Risk off and off is the major theme and we expect S&P to be the main driver for FX markets near term. Repeating from previous report: “There is a real problem for the Euro zone as Greece is probably not the last country to need financial aid to survive. The question is how long the healthy countries like Germany and France are willing to bail out the weak members? Should the failing states be omitted from the Euro? If Greece is bailed out, why should not Portugal, Spain or Italy be bailed out as well if they would face the same problem. Suddenly there is a fair amount of problems to solve, which if everything goes terribly wrong simply threaten the future of the Euro. EMU is facing challenges with member states in different economic cycles and the problem is of course that the countries have no way to adjust the monetary policy to the country’s need and problems. So it all ends up with a big compromise that really is not perfect for anyone, which is of course not optimal. We have debated for years that the Euro currency viability and limitations would be tested once the first recession hit the Euro zone, which is now. So now is the time for the Euro to really prove it can be a serious alternative to the reserve currency status of the USD.
We expect the debt burden among nations will become more of focus going forward and would not be surprised to see the high debt currencies to struggle going forward as the risk of facing higher funding costs could hurt the budget.”

Euro rally off the lows Friday was encouraging for the Euro bullish camp, but we see resistance at 1.3717 area that needs to be broken to open for any strong recovery.

JPY trading strongly on risk aversion, we don’t think the JPY will do well over time as fundamental weakness should catch up with valuation. We think JPY is hugely overvalued at this point.

The supply is still high in Crude that limits the ability to get any stronger rally going and of course risk off is also weighing on price.

VIX hit our target of 26 Friday and we think it is limited how much higher it will go near term, but again depends on S&P ability to sat above 1050.

EURJPY vs. S&P 500 futures, see how the correlation has been totally off the last few months, but returned last week or so. Looking at the EURJPY vs. S&P 500 chart is looks like every time there has been a longer time of very low correlation it has been followed by a longer directional move.

FX Implied Volatility updated this morning:
EURUSD12,22 %12,22 %12,33 %12,33 %12,61 %12,61 %
GBPUSD12,60 %12,60 %12,21 %12,21 %12,50 %12,50 %
USDJPY12,53 %12,53 %12,92 %12,92 %13,34 %13,34 %
USDCHF11,25 %11,25 %11,41 %11,41 %11,98 %11,98 %
AUDUSD14,23 %14,23 %14,86 %14,86 %15,03 %15,03 %
USDCAD10,61 %10,61 %11,62 %11,62 %12,41 %12,41 %
EURJPY15,01 %15,01 %14,95 %14,95 %14,89 %14,89 %
GBPJPY16,89 %16,89 %16,65 %16,65 %17,09 %17,09 %
AUDJPY20,42 %20,42 %20,79 %20,79 %20,51 %20,51 %
NZDJPY20,52 %20,52 %19,76 %19,76 %19,66 %19,66 %
EURNOK7,38 %7,38 %6,86 %6,86 %7,29 %7,29 %

Some interesting news stories:


Euro: Weak below 1.3717 and the next Fibonacci level, 61.80% retracement is at 1.3488. Looks like sell on rallies until the stock market get some upside momentum.

Cable: Break below 1.57 key support took the pair out the range that it traded for over the last 6 months, which is very bearish.

USDJPY: Took out the reaction low of 89.13 and that is bearish price action. We still favor getting long when the current debt crisis nerves diminish, but that could take a few days. 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: Took out key 1.0590 resistance level and bullish above 1.0480 now. We note that key falling resistance from the October 2009 high is coming in at 1.0966, of course not in play at the moment, but something we like to have in mind.

AUDUSD: the 0.8733 key support taken out today, which opens for a run towards 0.8560 support next.

USDCAD: Back above 1.07 and key resistance is 1.0750 and the drop in Crude is also putting pressure on CAD along with risk off.

EURJPY: Break below 124 is basically enforcing the recent bearish momentum it has now broken out of the range seen since April 09 and next really strong support level is now 115.90

GBPJPY : Break below 143 today puts attention to the December 09 low at 139.26.

AUDJPY: Breaking out of the trend channel seen since 13th of July 2009 and the next real support level on longer term charts are down at 70.30 for now.


Our outlook
PairOur strategy TodayCorrection to 1.4216
EUROSell rallies below 1.3717Correction to 1.4216
CableBearish below 1.571.52
USDJPYBearish near term, we stand asideTest of 93.70
USDCADBearish below 1.0745, sell ralliesOur target of 1.07 hit and expect to move back down to 1.0450
EURJPYWeak below 124Test of 120 near term
AUDJPYStand asideLooking to get long at lower levels
GBPJPYBearish below 143Test of 137 within the next few weeks
AUDUSDOur downside target of 0.8730 was hit and extended. Bearish as long as the risk off theme is on.

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