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In general 30 on VIX is historically very high

Mon, Nov 2 2009, 10:53 GMT
by Per-Erik Karlsson

Avantage Financial GMBH

Market comment

at 996, meaning it could easily fall quite a bit lower. US GDP data came out strong yesterday, but have seen several analysts putting a big question mark on that number. We would not be surprised to see a rather large revision to this GDP data on the next GDP release. Gold tested the September high Wednesday (previous resistance, now support), held that level and bounced higher yesterday. That price action signals buying interest and it will be interesting to see what happens today. Remember still some weakness in the background on gold to and the way to remove this is to gap prices above the highs on a strong breakout move to force shorts out and avoid selling pressure to halt the move. JPY has been all over the place last few sessions and very volatile. The buying of JPY is basically a “risk off” trade on JPY causing the big move. We generally think JPY has limited scope for a very strong rally as BOJ will most likely step in and prevent the JPY from moving much below 87 vs. USD. Remember that Toyota was out last week saying that if JPY got stronger they had to move their production abroad. We can mention it again as we have done over the past few months, Japan has really weak looking fundamentals with ageing population, weak domestic spending, huge public debt and now a strong JPY. That is not a good mix to have in our opinion and it is unlikely that JPY can sustain a substantial rally when the fundamentals are that bad. It is normally that JPY benefits from risk aversion and we don’t want to step against that trend just yet, but at lower levels in both AUDJPY and EURJPY we would favor longs. We continue to favor shorts in NZD as the latest rally has made the NZD overvalued in our opinion. EURUSD tested 1.4670 support yesterday and held so far. Still looks toppish as long as it stays below 1.49. Crude getting above 80 USD per barrel this morning, looking at the chart was clear supply towards 82 USD per barrel and unless S&P makes another run towards 1100 level we favor a move lower in Crude targeting 75 USD per barrel. Same with Wheat and Soybeans, both got hit hard last two days and basically made bearish reversals. Both are approaching some minor support levels in both contracts that should halt the slide somewhat.
However we are looking for short setups in both contracts if the contracts make a decent rally. VIX is all over the place and reflecting increased nervousness among traders for a possible correction, can easily rally back towards 30 level that it traded at during the summer. In general 30 on VIX is historically very high, but of course keep in mind that during the crash in 87 it was 98. We are hearing more and more concerns over what will happen when the stimulus packages will be removed? That is the main driver for lower stocks and stronger JPY over last sessions, but of course US GDP took the debate off the table yesterday, but will the concerns return? We still think the recovery will be much slower than the market has been pricing in the last few weeks.

Some interesting news stories:

Technical’s

Euro: Failed to get above 1.51 and the correction was triggered when it broke below 1.4850 earlier this week and successfully held 1.4670 yesterday. Key resistance remains 1.4900 and weak below.

Cable: Rumor out that a middle eastern player bought 2 yards of Cable yesterday bring the huge rally in GBP. Still looks well supplied towards 1.67 and BoE interest meeting next week could bring more QE and send the GBP falling.

USDJPY: Was rejected at 92.50 last week and trading down below 91.50 Wednesday, which opens for a test of 89.88. Good support 88 and expect JPY to struggle to break that level.

Swissy: The break above 1.0155 opens for a run towards 1.04.

AUDUSD: The upper end of the long defined trend channel held and it corrected lower toward middle of the trend channel. We expect equities to be the driver for AUD going forward, so we look at S&P 500 for direction today. Lower end of trend channel is 0.8850, which if seen is a good risk reward level to test a long trade in our opinion.

USDCAD: Our upside target of 1.0590 was hit quite quickly and the next key resistance is now 1.0900.

EURJPY: Didn’t make it to 138.72, which was the key resistance, but stopped above 20 pips shy of this level. Monday’s reversal opens for a run back towards 131.

GBPJPY: Tested 148.47 as expected and actually got down to 148 Wednesday and rebound strongly on the GBP buy interest yesterday moving above toward 152 this morning. Very volatile last 2 sessions, key levels remains 147 support and 153.30 resistances. Technically bullish above 147.

AUDJPY: We called for a correction to 82 and that level was broken Wednesday. AUD is strongly correlated to equities, we expect the direction in equities to drive AUD as well, meaning that if today is a key day for equities, so if also true for this pair.

Our outlook

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Published on  Mon, Nov 2 2009, 11:04 GMT