S&P 500 futures above 1090 this morning and be rallying on strong earning over the last sessions

Per-Erik Karlsson from Avantage Financial GMBH at 10/19/09

S&P 500 futures above 1090 this morning and be rallying on strong earning over the last sessions.
The break above 1075 opens for more upside, but need to see some strong days to carry the rally away from this break out level, otherwise we see a risk for a failed break out. Bottom line is now strong above 1075 until we see clear weakness. On the other hand, Gold is showing signs of weakness and could fall back and test the break out level of 1033 near term. We will monitor Gold closely over the next sessions to potentially set up a short trade. JPY weaker again this morning as the equities rally and risk appetite increase for carry trades, mean beneficiaries are AUDJPY, NZD and GBPJPY. GBP has been very bid last few sessions after the GBPUSD had a successful test of the key 1.5720 support area (Dec 08 high). USD is holding off the rally for the moment and been able to cap Euro from breaking 1.50 and ECB’s Trichet was again on the wires yesterday saying the Euro was not created to be a reserve currency. A note of caution on EURUSD though, the trade starts to look very crowded and we would not be surprised to see a correction at some stage over the next week to shake out weak longs, which would most likely pressure Gold as well. Crude oil breaking 75 USD per barrel Wednesday and had another strong day yesterday after the oil inventories pulled prices higher. Nat Gas got very close to our goal at 4.33 for the correction (that we mentioned earlier this week) and it seems like there was fresh buying below 4.45 yesterday on the release of the Nat Gas inventory data. The data was bearish and Nat Gas sold off following the release, but found buying interest just below 4.40 and rallied back up in sync with crude throughout the afternoon. As long as the 4.33 support holds the outlook remains positive for another run at the 5.10 level. Soybeans, wheat and corn shows weakness following the huge run up, we are looking for slightly higher levels to get short, unless the support levels of these contracts give in. basically the weather outlook running prices and a bit divergence among the weather services how cold weather will turn out, but we are monitoring carefully. In currencies AUD and NZD continues to perform strongly, but we think NZD is overvalued compared to the out and we are favoring shorts vs. a basket of currencies.
Interesting article from German (see link below). We generally agree with this article that outlines the risk for a credit crunch in 2010 as bad assets needs to be lifted from bank’s balance sheets. We are far away from being out of the woods just yet, still many things that needs to be cleared for banks to operate “as usual” again and the restrained credit and delivering will at some point bite into the pace of the recovery. At some stage the Central Banks have to start tighten the interest rates and remove the stimulus to avoid rapid inflation. Over the last week’s the signals have been that the this might happen sooner rather than later, which we think will hurt the economy more than many people thinks. Another part to pay attention to is that many financials are making lots of money based on the “free money” received by the governments and of course the bad assets have been re-priced to “much above” fair value, which at some point have to be sold for a loss or written off. We also think that the unemployment data have to improve before we can get a sustained recovery. The foreclosures remain high in the US, which will take time to work through as well. Bottom line is that stocks are rising based on improved expectations and lose liquidity that can pull the market higher, but we still think the expectations are not in line with the economic outlook for the moment.

Technical’s

 Euro: Took out 1.4850 key resistance earlier this week and 1.50 is next up as long as 1.4650 holds. 

Cable: Bullish reversal after hitting 1.5720 (Dec 08 high) support Tuesday and trading up through the break down level of 1.6115 yesterday, which is basically very bullish development. Next target is now for a run back towards the top of the recent range up at 1.6740. 

USDJPY: 88.00 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 are over. We expect JPY to struggle for the rest of the year.

Swissy: Broke below 1.02, looking for parity next. 

AUDUSD: Bullish momentum strong above 0.90 level, Next key resistance level is 0.93 now.
Yesterday’s price action shows weakness as the it made a new high of 0.9274, but falling back and closing unchanged. Had to be some selling to make it close off the highs.

USDCAD: The break back above 1.0374 yesterday set up a potential reversal pattern. However would like to see a daily close above 1.04 to open for more a rally. 

EURJPY: Next resistance level is 135.48 followed by 136.09. Key resistance is up at 138.72 and we look for a test of this level over the next weeks. 

GBPJPY : Huge rally last few days and break the 144.54 key resistance have now turned this pair bullish. The next resistance level is 150.37 followed by 153.26 (September 09 high). 

AUDJPY: The break of 82 opens for 85.