S&P 500 futures made a new yearly high and breaking above the previous 1016 high

Wed, Aug 26 2009, 09:35 GMT
by Per-Erik Karlsson

Market comment

S&P 500 futures made a new yearly high and breaking above the previous 1016 high. Yesterday’s price action was slightly bearish with a close well of the high on high volume. Meaning it had to be sellers pushing the price off the highs. So we keep a close eye on the S&P over the next few sessions to see if the weakness signal is confirmed or not. When it comes to the economic outlook we reiterate our outlook for a more “W” shaped recovery and not a “V” shaped one. Still looks like recent recovery has been driven by stimulus from government spending around the globe. This is just borrowed growth in our view, which needs to be backed by more consumption and investments from the private sector to really turn things around. Therefore we see a good chance for a dip in the economic data towards start of 2010 when the current impulse from the stimulus packages fades out. We are a bit surprised to see JPY holding up as well as it has been over the last week given that risk appetite has been increased in other markets (equities and crude rallying). It seems to be a disagreement between Forex and equities on the outlook going forward, with Forex markets not mapping the latest up move in equities. So, could it be that Forex traders are not as bullish on the economic recovery as the equity traders? The falling correlation between S&P and AUDUSD over the last week is a good example that Forex traders have not increased risk appetite in the same was as equity traders. Our risk appetite parameter EURJPY has clearly lagged S&P over the last week, so somebody is selling EURJPY while S&P is making new yearly highs, something is going on and we pay attention. Nat gas below 2.80 front month this morning, still no clear buying signal. Crude is approaching key 75 level, expect sellers up there.

Some interesting news stories:

Technical’s

Euro: Key support remains at 1.40, with minor support at 1.4046 (weekly low). Still expect 1.40 to hold as long as S&P stays above 970. See resistance at 1.4350 and 1.4450 today.

Cable: Dipped below 1.63 Monday, but expect 1.62 level to be good support and buy on dips above this level and looking for a test of 1.67. Resistance at 1.6593 and 1.67 today.

USDJPY: Weak below 95 with support down at 94 and 93.20. Surprised by recent strength in JPY, but still looks like JPY should be sold on rallies due to weak economic outlook and low yield and increasing risk appetite.

Swissy: Range bound with support down at 1.0540 with resistance up at 1.0910. Favor range trading in this mentioned range until proven wrong.

AUDUSD: Key resistance at 0.8550 and key support down at 0.8150 level. Bullish above 81.50 basically. A daily close below 0.8150 would be a bearish signal.

USDCAD: Crude oil trading towards 75 USD per barrel is giving CAD support and chart is bearish below 1.0870 and target is for a test of 1.0633 level again.

EURJPY: Strong support down at the 132 to 133 support zone. Looks bullish as long as S&P 500 stays above 970 and key support in the EURJPY at 132.

GBPJPY : Key support is 153.50 and while above this level it should be supported on dips. Risk is that EURGBP has broken above key resistance at 0.8630, which is bearish for GBP and could lead GBP to underperform EUR over the next sessions.

AUDJPY: Key pivot point is 76.65 and basically medium term bullish outlook intact above this level.

Our outlook

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