EURJPY vs. S&P 500 futures, the correlation has a bit off last months
Thu, Mar 4 2010, 09:41 GMT
by Per-Erik Karlsson
Market Comment
S&P 500 futures came within striking distance of the 1128 key resistance level (high of 1125) that we have outlined for many days as the key level for this latest rally. It closed materially off the high, which signal selling pressure, so it will be interesting to see how the market trades over the next few days as the 1125 reached today could be a near term top. The Greece debt story continues to be in focus and Greece came out this morning confirming they have passed additional measures totaling EUR4.8bio and the Euro stages a slight recovery on Greek news as risk appetite came back in. The bar yesterday signals a potential short term bottom being put in place. Also remember the according to IMM data the amount of Euro shorts among small speculators is at record levels, does this signal the trend is about to turn for stronger Euro? Normally the small speculators have a tendency to be wrong when we get an extreme sentiment like now. We note the risk parameter currency number one these days the AUD failed to close above the 100 day moving average at 90.70 today even though RBA raised rates this week and good Australian GDP data. We pay attention to the fact this failure of AUD to move above this 0.9070 level despite strong move up in S&P lately might signal some risk aversion event is on the radar and is AUD a leading signal for a weak Payrolls maybe?
GBP up on stronger than expected PMI services report and on comments from ex-Chancellor Clarke suggesting GBP will be very weak if labor gets in power. With two months until the widely expected 6 may election date, we expect GBP to be mostly news driven with main driver being the election.
Bank of England out tomorrow, we don’t expect any change. Heard reports of SNB selling CHF yesterday, but up move in EURCHF was very limited. We have ECB out with interest rates decision as well tomorrow, should also be no change, we follow the press conference with interest to see if ECB is signaling any exit strategy from the stimulus phase.
Bank of Canada signaled that growth had been stronger than expected yesterday and rates could be hiked sooner rather than later giving CAD a nice bid. Testing the 1.03 level today, but not able to close below the level yet.
Gold moving up nicely and broke above the 1131 key resistance yesterday that opens for a test of the 1151 level next (+2 sigma band level). Crude testing the 81 USD per barrel level as well, keep in mind the top of the 6 months range is at 84.37 and we expect sellers ahead of this key level.
EURJPY vs. S&P 500 futures, the correlation has a bit off last months. Looking at the EURJPY vs. S&P 500 futures chart is looks like every time there has been a longer time of very low correlation it has been followed by a strong directional move.
FX Implied Volatility updated this morning:
| ATM | 1w | 1m | 3m | |||
| put | call | put | call | put | call | |
| EURUSD | 10,91% | 10,91% | 10,84% | 10,84% | 11,36% | 11,36% |
| GBPUSD | 13,49% | 13,49% | 13,34% | 13,34% | 13,93% | 13,93% |
| USDJPY | 10,90% | 10,90% | 11,44% | 11,44% | 12,20% | 12,20% |
| USDCHF | 10,02% | 10,02% | 9,82% | 9,82% | 10,26% | 10,26% |
| AUDUSD | 12,18% | 12,18% | 12,61% | 12,61% | 13,58% | 13,58% |
| USDCAD | 10,30% | 10,30% | 10,45% | 10,45% | 10,97% | 10,97% |
| EURJPY | 13,64% | 13,64% | 14,02% | 14,02% | 14,53% | 14,53 % |
| GBPJPY | 16,36% | 16,36% | 15,96% | 15,96% | 16,35% | 16,35% |
| AUDJPY | 16,93% | 16,93% | 16,98% | 16,98% | 18,17% | 18,17% |
| NZDJPY | 17,47% | 17,47% | 17,52% | 17,52% | 18,75% | 18,75% |
| EURNOK | 5,70% | 5,70% | 6,55% | 6,55% | 6,86% | 6,86% |
Some interesting news stories:
Technical’s
Euro: We see near term resistance up at 1.3780 level with more key resistance up at 1.3850 level.
Have to break these levels to really get any real momentum to the upside and below these levels it looks like a sell on rallies.
Cable: Bearish below 1.52 and need to see a daily close above this level to open for any rally. Sell rallies below this level. Next major support level is 1.4780, which is former resistance and break out level.
USDJPY: Tested key falling resistance from April 09 high at 92.05 at a couple of weeks ago, 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: We note that key falling resistance from the October 2009 high is coming in at 1.0890, which is level we have outlined for weeks to watch. A break above here would be significantly bullish and potentially open for a rally toward 1.15 to 1.17 levels.
AUDUSD: Good support above 0.8950, with key resistance up at 0.9070 (100 day MA) and would like to see a daily close above this level this week to avoid a sell off.
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: Failed to close above 124.25 and bearish below this level for now.
GBPJPY: Couldn’t close above 143 and still remains weak below this level. Support down at the 131.40 level
AUDJPY: Key support at 76.30 has held so far and 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 | 1.3850 | 1.5680 | 93.70 | 1.1200 | 0.9405 | 1.0869 | 127 | 145.7 | 86.2 |
| Res1 | 1.3780 | 1.5202 | 91.00 | 1.0890 | 0.9090 | 1.0745 | 124.25 | 143 | 81.9 |
| Sup1 | 1.3450 | 1.4780 | 87.34 | 1.0650 | 0.8630 | 1.0205 | 120 | 131.40 | 76.3 |
| Sup2 | 1.3300 | 1.4400 | 84.83 | 1.0300 | 0.8560 | 1.0000 | 115.9 | 127.00 | 70.3 |
Our outlook
| Pair | Our strategy Today | Our medium term forecast |
| EURO | Bullish above 1.3500 | Correction to 1.3850 |
| Cable | Bearish below 1.5200 | Our 1.5060 target hit, we extend the target to 1.44 |
| USDJPY | Bullish above 89.00 | Test of the falling resistance was hit Friday, our target was met. |
| USDCAD | Bearish below 1.0745, sell rallies | Our 1.0450 downside target was hit, perfect |
| EURJPY | Weak below 124.25 | |
| AUDJPY | Stand aside | Test of 82 |
| GBPJPY | Bearish below 143 | Our 135 target hit, stand aside |
| AUDUSD | Bullish 0.8800, buy dips | Our 0.90 target hit and we extend the target to 0.92 |
