Crude is trying to get towards the 84.37 key resistance level

Wed, Mar 10 2010, 09:38 GMT
by Per-Erik Karlsson

Market Comment

S&P futures looking like it will potentially to test the 1148 (2010 high) near term, but don’t expect any major rally above the 1160 level or so near term. We note that German Dax index upside contained by Sigma +2 band so far (2 standard deviation line). See the daily futures technical report for more info.

We have now come to the time of the year when it is time for the Japanese companies to prepare for the end their fiscal year (end of March) and Yen to be repatriated back to Japan. It is very difficult to judge the magnitude of the size of flows to be honest and some years has caused major moves, while others have seen little movements. Given the uncertainty we prefer to scale back Yen related trading towards the end of this month.

GBP was sold overnight and this morning on negative comments regarding the UK ratings, weaker housing prices and prospects for hung parliament also weighing on the single currency. A daily close blow 1.4960 would open for another run towards the 1.4780 support and possibly break lower. Weak UK trade data earlier today didn’t really help either for GBP.

Lots of talk still in the press related to Greece and ECB’s Weber out saying this morning that an IMF style institution is unlikely to happen and that current framework needs to be used better. Weber basically played down the reason for any bigger change. We have said for some time that the EMU in the current format is very fragile to economic downturns as the Euro becomes like a pegged currency for the weaker countries in the Euro zone, which means their imbalance grows further as they cannot use their currency in an effective way to limit the downturn. The weak countries get stuck with a much too strong currency instead, which certainly does not help. Comments out from Fitch that Portugal may face a downgrade is taking the Euro lower as well

RBNZ rate hike is approaching (tomorrow) and the analysts don’t expect any change, but the comments from Bollard will be closely watched, as any hint of a rate hike would possibly send NZD much stronger. Recent comments and data have been dovish so the surprise factor is likely the biggest if the statement is hawkish.

Big news for Gold overnight as a comments from Mr. Yi Gang, the director of SAFE (State Administration of Foreign Exchange) saying that China’s interest in Gold might well be limited at the moment. He further noted that Gold is volatile and returns are not steady enough to invest heavily in gold. This was enough to take Gold down towards the rising trend line (1113) from 2010 low. A daily close below this 1113 level would not be good for bulls. We see 1088 as key support for now.

Crude is trying to get towards the 84.37 key resistance level, not convinced it will be able to make that before we see another dip towards the 77 support level. Nat Gas tested the 6 months low yesterday and some signs of buying interest appeared, but in generally there is lots of Nat Gas supplies to not sure how much potential there is in a bounce, but we would be a bit cautious shorting as these levels unless 4.40 support breaks.

EURJPY vs. S&P 500 futures, the correlation between EURJPY and S&P 500 continue to diminish last 24 hours as the rally in EURJPY was capped Friday and Yen repatriation flow support Yen while S&P continues higher.

FX Implied Volatility updated this morning: 

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 this level held Friday, sell rallies below this level. Next major support level is 1.4780, which is former resistance and break out level. Expect to see buying ahead of this 1.4780 level as the reversal higher last week looks still like a potential low.

USDJPY: Falling resistance from April 09 high coming in at 91.59 today, which needs to be taken out to open for any stronger move higher. We still favor buying dips as long as 88 level holds 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. However keep in mind that repatriation flows should support Yen towards end of month (the Japanese fiscal year).

Swissy: We note that key falling resistance from the October 2009 high is coming in at 1.0869, 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 and with the 100 day moving average taken out it has scope to test 0.9329, the 2010 high.

USDCAD: Bearish momentum intact below 1.04 pivot level and key 1.02 support level that has held since July 2008 have to be taken out within the next few sessions to avoid a move to test 1.04.

EURJPY: Failed to close above 124.25 and bearish below this level for now. Remember the JPY fiscal year end flow until end of month should give support to JPY, but how much it difficult to judge.

GBPJPY: Weak below for support at 138.30 and key support down at the 131.40 level that could be tested next.

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.

Our outlook

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