The VIX has fallen down to 23 in the Feb contract today
Per-Erik Karlsson from Avantage Financial GMBH at 02/17/10
Market Comment
EU has given Greece one month to prove itself, to show food on deficit and comments out from Juncker signals EU Ministers are looking to stabilize Greece one way or another to avoid a meltdown. Seems like the markets liked this approach from the EU and risk was put on in force today. We have outlined for some time that the S&P chart is still in an uptrend and the correction down to 1040 is just a correction as long as 1056 support holds. We expect a move to test 1103 key resistance, which is the last reaction high. A break above 1103 could really bring in a short squeeze. S&P futures has taken out the interim down trend and technically still in an uptrend if 1056 key support can hold. Next key resistance is 1103, which needs to be broken to open up for any stronger rally. The strength from Friday 5th of February is still in the background 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. Key support is now Friday’s 5th of February 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 are very critical that Germany and France are willing to pay for Greece inability to control spending and polls out of Germany (Bild am Sonntag) shows 67% of the population is unwilling to give away any tax money to Greece. May remain very skeptical of the signal effect a bail out would send and brings in a lot of problems like: who should be bailed out? Where to stop? etc. We note that many other Euro zone states were forced to cut spending some years back to join the Euro and now they discover that Greece is taking a “free ride”. On the other hand the loss of face and creditability if Greece would be thrown out is according to some material (see Issing article in Businessweek, link page 3).
At the moment it seems like the markets are applauding every news that adds potential liquidity and cheap money and nervousness and negativity kicks in as soon as any Central Bank or Politicians signal tightening. This basically fuels the risk on and risk off trades that drives the markets at the moment.
We expect more JPY weakness going forward due to weak domestic economy, unfavorable demographics and weak exports. Another problem is the huge public debt in Japan. It seems that the focus on Eurozone and Greece over the last month or so has made investors totally forget about the debt burden in other states like US, UK and Japan. As far as we can see these countries cannot be that much better off so their currency should outperform that strongly vs. the Euro as they have over the last month or so.
As outlined last week, Gold is bullish above 1075 key support and next key level is reaction high at 1126, now resistance. Crude is on the offensive again and above 75 USD per barrel level and targets 78 USD per barrel now. As we have mentioned many times of the previous weeks, it remains in the wider range since 6 months and it doesn’t appear to be any real driver near term to take out this range with support at 67.87 and resistance at 84.33. We note that CAD is getting a bid on the latest rally in Crude and maybe worth looking at buying some CAD? The vols in many of the FX pairs have come down materially over the last 2 sessions, which makes sense as the S&P has stabilized.
The VIX has fallen down to 23 in the Feb contract today, pretty much as expected and the VIX options trade we gave out on our daily service last month turned out quite well.
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.
| ATM | 1w | 1m | 3m | |||
| put | call | put | call | put | call | |
| EURUSD | 10,49% | 10,49% | 11,21% | 11,21% | 11,70% | 11,70% |
| GBPUSD | 11,38% | 11,38% | 11,16% | 11,16% | 11,87% | 11,87% |
| USDJPY | 11,80% | 11,80% | 11,59% | 11,59% | 12,63% | 12,63% |
| USDCHF | 8,91% | 8,91% | 10,22% | 10,22% | 10,77% | 10,77% |
| AUDUSD | 11,98% | 11,98% | 12,92% | 12,92% | 13,90% | 13,90% |
| USDCAD | 9,81% | 9,81% | 10,46% | 10,46% | 11,56% | 11,56% |
| EURJPY | 13,95% | 13,95% | 14,87% | 14,87% | 15,09% | 15,09% |
| GBPJPY | 14,18% | 14,18% | 15,15% | 15,15% | 15,93% | 15,93% |
| AUDJPY | 17,06% | 17,06% | 18,39% | 18,39% | 19,05% | 19,05% |
| NZDJPY | 16,92% | 16,92% | 18,55% | 18,55% | 19,47% | 20,14% |
| EURNOK | 6,60% | 6,60% | 6,87% | 6,87% | 7,50% | 7,30% |
Technical’s
Euro: The break above yesterday’s high of 1.3633 opens for a run towards 1.3840 resistance next. Technically still weak below 1.3840 and the next Fibonacci level, 61.80% retracement is at 1.3488. However risk on today as S&P futures rally towards resistance at 1094, followed by 1103.
Cable: Bullish reversal confirmed by break above 1.5780, which opens for a test of the interim falling resistance at 1.5930 near term.
USDJPY: The 88.58 low from 4th of February has held so far and we favor longs as long as this level holds. Falling resistance from April 09 high is coming in at 92.21, which needs to be taken out to open for any stronger move higher. We still favor buying dips and 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 1.07 level today and that formed a bearish reversal and next support level is 1.0480 (previous break out level). We note that key falling resistance from the October 2009 high is coming in at 1.0934, of course not in play at the moment, but something we like to have in mind.
AUDUSD: The move above the 0.8916 (3rd Feb high) level confirms what we outlined last week that a solid base have been built around the 0.8579, low from 5th of February. Next resistance level 0.9092, which is the January 25th high. RBA minutes out overnight suggest that rates will rise further and should support AUD going forward.
USDCAD: As we expected after the pair was rejected up at 1.0750 it would drift back towards the 1.0400 level, which has proved to be a important pivot point over the last months. A daily close below 1.04 would open for another run at the key 1.02 support level that has held since July 2008.
EURJPY: Strong reversal off the 120.69 low seen on 5th of February as JPY was sold across the board today. However still need a daily close above 124.25 to confirm a bottom is in place.
GBPJPY : Looks very likely that it will close above the 141.43 level today, which is 5th of February high. This would confirm a bullish reversal open for a move back to 145.70 resistance. Key support remains 138.26 (5th of Feb low).
AUDJPY: Key support at 76.30 has held so far and today’s break above 80.30 confirms a bottom is in place. Next resistance is now the 81.92 level (former rising support trend line from Feb 09 low, now resistance). We expect strong AUD and weak JPY going forward, buy dips.
| Levels | Euro | Cable | USDJPY | Swissy | AUDUSD | USDCAD | EURJPY | GBPJPY | AUDJPY |
| Res2 | 1.4216 | 1.6123 | 93.7 | 1.12 | 0.9405 | 1.0869 | 127.00 | 145.70 | 86.20 |
| Res1 | 1.384 | 1.594 | 91 | 1.0966 | 0.909 | 1.0745 | 124.25 | 143.00 | 81.90 |
| Sup1 | 1.3584 | 1.553 | 87.34 | 1.048 | 0.863 | 1.04 | 120.00 | 137.3 | 76.30 |
| Sup2 | 1.3488 | 1.5372 | 84.83 | 1.03 | 0.856 | 1.0205 | 115.9 | 135.02 | 70.30 |
| Pair | Our strategy Today | Our medium term forecast |
| EURO | Buy dips above 1.3640 | Correction to 1.4216 |
| Cable | Bullish above 1.5570 | Test of 1.52 |
| USDJPY | Bullish above 89.00 | Test of 92.25 falling resistance |
| USDCAD | Bearish below 1.0745, sell rallies | Out 1.0450 downside target was hit, perfect |
| EURJPY | Weak below 124.25 | Test of 127 next few weeks |
| AUDJPY | Stand aside | Test of 82 |
| GBPJPY | Bullish above 140 | Test of 145.70 next 3 weeks |
| AUDUSD | Bullish 0.8916, buy dips | Our 0.90 target hit and we extend the target to 0.92 |
