Comprehensive FX and Futures Daily Research
FastBrokers Research Team from FastBrokersFX at 11/27/09
Daily Market Commentary
EUR/USD Sells Off On Dubai News
The EUR/USD is tumbling towards 11/20 lows after breaking through October lows and surging towards 1.5140. Today’s whipsaw movement comes in reaction to a broad-based exit from the risk trade in reaction to news from Dubai. As most investors know by now, Dubai World is requesting a debt restructuring of what could be up to $80 billion of credit. Although actual losses incurred are presently unknown, some European and UK banks could have considerable exposure. This week’s news concerning Dubai’s debt has shocked FX and equity markets as investors worry that the development may indicate forthcoming problems from other emerging economies. As a result, Asian markets have been under intense selling pressure, and European/U.S. equities look set to open sharply lower. Meanwhile, the FX markets are experiencing a broad based appreciation of the Dollar and Yen as gold crashes back below $1150/oz. Hence, it seems short-sellers have finally received the psychological trigger they were waiting for to unwind the bull-run in the risk trade. The question now becomes whether equities and currencies can stabilize before heading below more meaningful technical levels.
As for the EUR/USD, the Euro’s present relative strength is helping the currency pair to hold up above 11/20 lows along with our 1st and 2nd tier uptrend lines. Wednesday’s surge past October lows was a very bullish move, allowing the EUR/USD to weather today’s storm thus far. As a result, both the EUR/GBP and EUR/AUD are performing rather well. However, the EUR/USD may be forced to follow suit should equities and other major Dollar crosses continue their downward movements. That being said, investors should keep an eye out for our 1st tier uptrend line should it be tested. Our 1st tier runs through November lows. Hence, a movement below the 1st tier may indicate a more protracted pullback towards the 1.460 area. As for the topside, the EUR/USD faces multiple downtrend lines once again along with the psychological 1.50 level.
Meanwhile, it will be interesting to see whether the S&P futures can recover some of their pre-market losses as investors digest the Dubai news along with Thanksgiving turkey. Despite the investor uncertainty spreading throughout the community at the moment, the ultimate sustainability of Dollar weakness and equity strength could likely rely upon next week’s econ data along with the RBA’s meeting late Monday EST and the ECB’s central bank meeting on Thursday. Hence, the EUR/USD may be able to hold above 11/20 lows and our 1st tier uptrend line as investors await a confirmation from econ data and central bank policies.
Present Price: 1.4854
Resistances: 1.4860, 1.4886, 1.4904, 1.4920, 1.4946, 1.4970, 1.4999
Supports: 1.4843, 1.4826, 1.4808, 1.4797, 1.4771, 1.4754, 1.4723
Psychological: 1.50, November Highs and Lows
GBP/USD Declines with Broad-Based Risk Aversion
Volatility has picked up more than investors may have expected with a holiday shortened week in the U.S. The Cable has dropped to the 1.63 area after sinking below our previous 2nd tier uptrend line. However, the Cable is presently finding some support at previous November lows as U.S. markets come back online and investors digest the concerning news emanating from Dubai. As most investors know by now, Dubai World is requesting a debt restructuring of what could be up to $80 billion of credit. Although actual losses incurred are presently unknown, some European and UK banks could have considerable exposure. This week’s news concerning Dubai’s debt has shocked FX and equity markets as investors worry that the development may indicate forthcoming problems from other emerging economies. As a result, Asian markets have been under intense selling pressure, and European/U.S. equities look set to open sharply lower. Meanwhile, the FX markets are experiencing a broad based appreciation of the Dollar and Yen as gold crashes back below $1150/oz.
As for the Cable, the Pound has been hit a bit harder than the Euro since Sterling was already being weakened by cautious comments from BoE Governor King earlier this week. King explained that considerable obstacles remain on the path to recovery and the use of further alternative liquidity measures aren’t out of the question. However, this week’s economic data wasn’t so bad, meaning the risk trades could hold their more important technical supports ahead of Monday’s data releases. Although early Monday will be relatively quiet data wise, activity will pick up in the evening session as China releases its Manufacturing PMI data along with a monetary policy decision from the RBA. Britain will follow with HPI and its own Manufacturing PMI data on Tuesday. That being said, a string of positive economic releases could restrain a bit of the investor uncertainty stemming from Dubai’s debt issue and allow the Cable to hold its more important technical supports.
Technically speaking, the Cable’s more critical technical levels seem to be previous November lows along with our 1st tier uptrend line. Our 1st tier uptrend line runs through October lows, meaning a failure of our 1st tier could potential result in a retracement towards the 1.57 area. However, before we get ahead of ourselves, we will have to see how November lows and our 2nd tier uptrend line hold up should they be tested. As for the topside, the Cable faces multiple downtrend lines along with the psychological 1.65 level. Hence, there are quite a few near-term topside obstacles, and the immediate-term goal for bulls will likely be stabilization and to create a new bottom to build a base from.
Present Price: 1.6326
Resistances: 1.6341, 1.6374, 1.6395, 1.6427, 1.6457, 1.6489, 1.6532
Supports: 1.6301, 1.6285, 1.6257, 1.6242, 1.6212, 1.6183, 1.6153
Psychological: 1.65, November Lows
USD/JPY Recovers From Intraday Lows After Hitting 85
The USD/JPY has captured headlines in the FX markets after the currency pair tumbled beneath October lows and continued to head south before bottoming just below the psychological 85 level. As we cautioned previously, a movement below our past 1st tier uptrend line could result in an ensuing selloff, and it appears the damage may be done for now. The USD/JPY registered 5000+ volume for the first time since the selloff in July 8th. While such a sell-side bias is certainly disconcerting, investors should also keep in mind that the USD/JPY experienced a nearly 7% rally over the next month after hitting these July 8th levels. Therefore, it will be interesting to see if the USD/JPY can stabilize from today’s lows and pursue a similar rally until the end of the year. That being said, we will have to see how far investors decide to go with negative news from Dubai.
As most investors are well aware of by now, Dubai World is requesting a debt restructuring of what could be up to $80 billion of credit. Although actual losses incurred are presently unknown, some European and UK banks could have considerable exposure. This week’s news concerning Dubai’s debt has shocked FX and equity markets as investors worry that the development may indicate forthcoming problems from other emerging economies. As a result, Asian markets have been under intense selling pressure, and European/U.S. equities look set to open sharply lower. Meanwhile, the FX markets are experiencing a broad based appreciation of the Dollar and Yen as gold crashes back below $1150/oz. In other words, investors have received a psychological trigger sending money towards risk averse investment vehicles. As one can see, investors continue to favor the Yen over the Dollar as a safe haven.
While investors already preferred the Yen as a safe haven, stronger than expected data releases from Japan have only fueled the USD/JPY’s downturn. Japan’s Trade Balance came in much stronger than expected earlier this week in addition to positive Household Spending, CPI, and Retail Sales reports late Thursday EST. Hence, the global economic recovery has helped Japanese exporters recover, resulting in job creation and rising personal consumption. A recovering Japanese economy is beneficial to the Yen and allows investors to send the USD/JPY lower. Naturally, Finance Minister Fujii is upping is rhetoric concerning a looser monetary policy from the BoJ. Therefore, it seems the bottom set today may result from investors speculating that Japan will intervene in the currency markets should the Yen strengthen any further against the Dollar. After all, all-time lows are getting much closer and the BoJ’s patience has to be wearing thin. As we recall, some major Japanese companies reliant on exports, such as Toyota, signaled that 90 is their breaking point in the USD/JPY. Hence, this week’s deterioration in the currency pair could put a lot of pressure on the DPJ to take action.
Technically speaking, 85 appears to be the new psychological benchmark with 90 hanging far overhead. It’s a bit troublesome to place supports on our chart right now due to limited historical reference. However, we can tell you that the 82.50-85 area proved to be a strong support area during the Spring/Summer of 1995. Therefore, the USD/JPY could experience similar support should the currency pair’s present downturn continue. As for the topside, there are multiple downtrend lines serving as technical barriers as the long-term downtrend bears down on price. Therefore, the USD/JPY will likely need strong support from the bulls to stage a noteworthy rally.
Present Price: 86.29
Resistances: 86.34, 86.57, 86.81 87.04, 87.22, 87.46
Supports: 86.20, 85.99, 85.74, 85.51, 85.22, 84.84, 84.60
Psychological: 85, 80, 90
Gold Sells Off Sharply As Dollar Runs
Gold is finally experiencing a sizable setback after nearly hitting the psychological $1200/oz level. News concerning the restructuring of debt in Dubai has sent a shockwave throughout equity and FX markets, resulting in large selloffs in global equities as well as bullish moves in the Dollar and Yen. In other words, we are witnessing a large risk aversion due to a spike in investor uncertainty, thereby knocking gold from the perch of its bubbly highs. Now that the Dubai news has sunk in, it will be interesting to see how far investors are willing to take the present flight from risk. That being said, investors may want to err on the cautious side considering how far crude fell after its bubble popped last year. Today’s movement is certainly a sizable step back, yet a warranted one considering the bull run that has taken place since the eclipse of $1000/oz.
Meanwhile, gold has quite a few uptrend lines in place and the $1150/oz level could prove to be a technical cushion along with 11/17 lows. As for the topside, we’re unable to place a downtrend line until we have a bit more track record to use. Therefore, the $1175 and $1200/oz level serve as technical barriers along with 11/23 and 11/26 highs. For the time being investors should monitor the EUR/USD’s interaction with our uptrend lines along with the S&P’s ability to mitigate intraday losses. We will certainly monitor the situation closely since today’s volatility could carry over into next week.
Present Price: $1159.60/oz
Resistances: $1161.90/oz, $1167.02/oz, $1170.16/oz, $1173.02/oz, $1178.54/oz, $1182.37/oz
Supports: $1153.65/oz, $1150.09/oz, $1140.16/oz, $1137.60/oz, $1131.63/oz, $1127.36/oz
Psychological: $1175/oz, $1200/oz, $1050/oz
Crude Drop Below $75/bbl on Dollar Strength/Equities Weakness
Although trading off intraday lows, crude futures have been hit hardly by today’s broad based strength in the Dollar and Yen. Furthermore, the S&P futures have sunk beneath 1100 and our 1st tier uptrend line. As a result, we are witnessing a broad-based risk aversion stemming from news out of Dubai that Dubai World needs to restructure a portion of its debt. Dubai’s debt problems have reignited investor uncertainty and doubt surrounding the vitality of the global economy recovery. Such uncertainty is confidence in the risk trade, thereby dragging crude futures lower as investors question the outlook for aggregate demand. However, stepping back from today’s selloff, the question becomes whether we are witnessing a limited setback or the beginning of a more protracted downturn. As a result, more weight will likely be placed on next week’s wave of economic data.
In terms of crude, last week’s large drop in unemployment claims is a positive development for aggregate consumption, possibly increasing demand for crude. However, the improvement in unemployment was countered by weaker than expected durable goods data. The setback in durable goods implies fewer cars on the road, thereby reducing consumption of crude and having a negative impact on price. The mixed economic data placed crude futures in a vulnerable position, and this week’s news from Dubai has tipped the glass, so to speak, extending crude’s pullback. Meanwhile, investors should monitor the EUR/USD’s ability to stabilize above our uptrend lines as well as the S&P’s ability to mitigate intraday losses and hang within striking distance of 1100.
Technically speaking, although crude is sliding further from our trend lines, the futures could find supports in the form of 10/9 lows, $70/bbl, and the September trading range as a whole. Therefore, it appears as though crude could have a solid support system waiting in the wings. As for the topside, crude faces multiple downtrend lines and the $75/bbl psychological level could begin to serve as a technical barrier.
Price: $74.34/bbl
Resistances: $76.03/bbl, $76.78/bbl, $77.58/bbl, $77.99/bbl, $78.38/bbl, $78.95/bbl
Supports: $74.19/bbl, $73.88/bbl, $73.24/bbl, $72.88/bbl, $72.30/bbl, $71.92/bbl
Psychological: $75/bbl, $70/bbl
S&P Futures Look to Open Sharply Lower on Dubai News
The S&P futures are trading sharply lower pre-market due to global risk aversion with rising investor uncertainty. Today’s movement comes in reaction to a negative shock administered by a debt scare in Dubai. As most investors know by now, Dubai World is requesting a debt restructuring of what could be up to $80 billion of credit. Although actual losses incurred are presently unknown, some European and UK banks could have considerable exposure. This week’s news concerning Dubai’s debt has shocked FX and equity markets as investors worry that the development may indicate forthcoming problems from other emerging economies. As a result, Asian markets have been under intense selling pressure, and European/U.S. equities look set to open sharply lower. Meanwhile, the FX markets are experiencing a broad based appreciation of the Dollar and Yen as gold crashes back below $1150/oz. Hence, it seems short-sellers have finally received the psychological trigger they were waiting for to unwind the bull-run in the risk trade. The question now becomes whether equities and currencies can stabilize before heading below more meaningful technical levels.
That being said, the S&P futures are presently recovering from intraday lows and are attempting to climb back above our important 1st tier uptrend line. Our 1st tier carries extra weight because it runs through previous November lows. Hence, a failure of our 1st tier could result in a more protracted retracement towards the 1025 area. As for the topside, the highly psychological 1100 level becomes a technical barrier once again. Meanwhile, investors should monitor the EUR/USD’s ability to keep above our 1st and 2nd tier uptrend lines as well as the ability for all other major Dollar crosses to stabilize. While today’s gains in the Dollar are sizable, important uptrend technicals are intact for the most part, meaning the S&P futures still have the opportunity to weather the storm from Dubai and maintain their upward trajectory. Hence, added emphasis could be places on next week’s economic data releases.
Although this week’s data set was a bit mixed, we saw some very encouraging developments. Most notably, weekly unemployment claims finally fell below the psychological 500k level. Therefore, the U.S. employment market may have taken another big turn for the positive. However, purchases of durable goods were surprisingly weak, indicating consumption remains a sore spot in the U.S. economy. On the other hand, should unemployment continue to improve consumption may rise as well. Altogether, the shock from Dubai is overshadowing positive developments fundamentally. Hence, should next week’s data come in positive investors may opt to restrain the negative impact from Dubai’s debt issues. In focus will be China’s Manufacturing PMI and the RBA meeting late Monday EST followed by UK and U.S. Manufacturing PMis on Tuesday.
Price: 1080.50
Resistances: 1083.75, 1087.75, 1093, 1097, 1102.5, 1109.75
Supports: 1075.75, 1071.5, 1067, 1062.75, 1056.75, 1052.25
Psychological: 1075, 1100, 1050, November Highs and Lows
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