The weather forecasts was actually adjusted to a bit higher temperatures yesterday

Fri, Sep 18 2009, 08:06 GMT
by Per-Erik Karlsson

Market comment

S&P 500 futures making another strong rally yesterday and posting a new high for the year, closing at 1063.50. Still looking fairly strong chart wise, but given the bad historical performance of September and October we are looking for a potential short set up at the current level. Energy have been tracking S&P higher and especially Nat Gas have posted a very strong rally since the low made on 4th of September, up more than 55% in 9 trading sessions. We see strong resistance at 4 USD level and again expect selling towards this level. We see a falling trend line going back to mid May coming in at 3.92 USD today forming resistance. We prefer to trade on the short side at these levels for a move back to 3.15 or so. Crude remains stuck in the 65 to 75 USD per barrel price range seen over the last month and a half. We watch these trigger levels carefully for the next trend. Lots of talk about Gold lately as it approaches the 1030 key resistance. As we mentioned last week, a break above 1040 or so would be a break out. However the long Gold trade looks a bit crowded, so pay attention to any potential false breaks. On the currency front the Canadian dollar is performing well on higher commodity and energy prices and Sterling continues to underperform the Euro. Expect the Sterling to underperform on weak UK fundamentals in form of raising debt and slower growth. Our risk appetite parameter EURJPY is back above the 134 level and we still expect weaker JPY over time and looking for a move towards 140 before year end. As long as there is no indication that Fed will raise interest rates the USD should also underperform. Bank of Japan kept interest rates at 0.10% and said the economy will start recovering in 2nd half of fiscal year 2009. Grains and Soybeans settled lower yesterday after the huge short squeeze seen on Tuesday after reports of colder than expected temperatures forcing the large amount of shorts running for the exits. The weather forecasts was actually adjusted to a bit higher temperatures yesterday, which of course also put pressure on prices again. However we think the big short squeeze seen on Tuesday have greatly hurt the short players and would not be surprised to see the people stopped out staying on the sideline and not entering new shorts in the near futures. The reversal patterns seen in several of the contracts should support prices.

Some interesting news stories:

Technical’s

Euro: After taking out the 1.4719 key resistance level yesterday the target is now set on 1.50 level. Chart is overbought so we pay attention to potential profit taking, but bullish momentum above yesterday’s low of 1.4642.

Cable: Weak below 1.6750 with key support down at 1.6115. These are the trigger levels for the next directional move. We expect GBP to underperform vs. Euro for the rest of the year due to weak fundamentals in UK.

USDJPY: Getting within in striking distance of 90 level yesterday, making a low of 90.11. We still think the JPY will struggle going forward as the public debt, weak domestic demand and unfavorable demographics should weigh on the JPY next few years. Call options also looks cheap with 1 month at the money options trading around 13% volatility this morning.

Swissy: Breaking 1.0369 and looking like 1.00 is within reach. Weak below 1.04 basically.

AUDUSD: Broke above the key resistance at 0.8550 last week, which opens for a test of 0.8814. Key support is now at 0.8544 today.

USDCAD: As mentioned last week we were looking for a test of 1.0633 (August low), which was hit yesterday. A daily close below 1.06 would target the September 2008 lows around 1.03 followed by parity.

EURJPY: Strong support down at the 132 to 133 support zone. With the correlation between EURJPY and S&P 500 fading, the bullish outlook would be reversed with a daily close below 132.

GBPJPY: GBP struggling vs. Euro this morning and still expect GBP to underperform Euro for the rest of the year. Especially as long as EURGBP trades above 0.89. However GBPJPY should still be dominantly driven by risk appetite in FX, so we favor higher levels over the next weeks. Support down at 148.64 (yesterday’s low).

AUDJPY: Key pivot point is 77.37 and basically medium term bullish outlook intact above this level. Key resistance is 80 today. A break above 80 would open for 82.

Our outlook

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