The CPI just out came in flat and Core 0.1% M/M

Fri, Mar 19 2010, 08:21 GMT
by Per-Erik Karlsson

Market Comment

S&P futures basically unchanged around the 1161 level at the time of writing and it tested the 1165 resistance level yesterday, but failed to move above so far. It has scope to move higher towards 1177 resistance that is the +3 Sigma level. However we very seldom see moves beyond 3 Sigma’s and we don’t expect that to happen this time either. So in our view the scope is limited for a strong rally, but it might just grind lower. Seems to be plenty of shorts in the S&P futures at the moment and these shorts probably don’t want to see the S&P above 1180. VIX at a new low for the year yesterday and it looks quite cheap in our opinion, so we are looking to add more VIX options over the next few days or so.

More talk about Greece this morning, with IFO saying that Greece should exit the Euro zone to fix the economic problem outside the EU and such comments have not been good news for the Euro last few months and no difference this time as the Euro is down below the 1.3640 level at the time of writing vs. above 1.3800 yesterday morning. Looks like the EMU have to come up with a better structure to deal with similar problems in the future to be able to withstand economic downturns. As we have outlined in the past the current structure is fragile without a treasury and weak controls on the members’ financial situation. The problem we see a bit is that the message from the EU on Greece is very unclear to say the least. EU keeps saying that Greece will not receive any debt guarantees and EU will not allow Greece to default. There have been released very few details as well around how the EU will solve the Greek debt problem in a worst case scenario.

Yesterday US PPI came out below expectations (-0.6% M/M) and the inflationary worries have turned to deflation as there seems to be very little inflation to talk about of at the moment. The CPI just out came in flat and Core 0.1% M/M, so this also confirms the trend from yesterday’s PPI.

Yesterday’s comment on the EURUSD:

The USD was sold off across the board this morning taking the Euro very close to the key 1.3840 level. Since the amount of Euro shorts are still at very high levels, we reckon it will be massive amount of stops above this 1.3840 level. So could easily get a strong short squeeze if this 1.3840 level is broken by let’s say 20 pips or so. Of course risk as well that short sellers use this 1.3840 to establish fresh shorts that will force the Euro lower near term. So we reckon it can go both ways and the price action over the next few days will be key.

Fair amount of sellers up at the 1.3840 resistance level so far, but as long as the 1.3550 support level holds it could make another run towards the 1.3840 level. We also saw comments from a major European bank that they had closed their long in EURUSD on the run towards 1.3800.

We note that Crude has possible no demand bar yesterday, which signals weakness and if this is a no demand bar it should make a wide down day on increased volume over the next few sessions. Falling resistance from the Dec09 high in Gold is coming in at 1132 this morning, could it be a near term top we say yesterday?

Keep in mind that US moved to summer time over the weekend and therefore the US data releases will be 1 hour earlier than normal here in Europe for the whole week.

EURJPY vs. S&P 500 futures, the correlation has a bit off last months to say the least. Maybe it AUD vs. EURJPY is a better indicator for risk appetite these days? Will look at that tomorrow.

Some interesting news stories:

Technical’s

Euro: Support down at the 1.3550 level with key resistance up at 1.3840 level. The interim downtrend from the December high was broken Friday, but we still would like to see daily close above 1.3840 to look for a move higher. Sellers took over this morning as it was not able to break the 1.3840 key resistance, scope for a test towards 1.3550 next.

Cable: The key resistance at 1.5220 taken out today and there is now scope for a move towards the +2 Sigma band that is coming in at 1.5524. Key support is now yesterday’s low of 1.4974.

USDJPY: Falling resistance from April 09 high coming in at 91.34 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 1.0825, 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. The outlook remains bearish below this 1.0825 level. There is a rising support line coming in at 1.0452 from the November low and this coincides with the – 3 Sigma bands that is not far off at 1.0432, so we expect support towards this level.

AUDUSD: Good support above 0.8950 and with the 100 day moving average taken out last week it has scope to test 0.9329, the 2010 high. Keep in mind that AUDUSD seems to have a fairly high correlation with S&P, so keep an eye on S&P when trading AUDUSD.

USDCAD: Finally took out the key 1.02 support and as long as it stays below 1.0250 it should have scope for a move towards 1.00. We note that falling trend line from the 2009 high is coming in at 1.0500 for the moment, so longer term trend is bearish below this falling resistance.

EURJPY: The 124.25 resistance level was taken out Friday, but it could not sustain the momentum yesterday, which indicates that decent amount of sellers above 125. We expect 122 to 125.40 range for the near term unless the stock market would make any bigger moves. Remember the JPY fiscal year end flow until end of month should give support to JPY, but how much it difficult to judge. Expect more choppiness over next few weeks.

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

AUDJPY: Bullish above the interim rising trend line coming in at 80.36 today, with former rising support from 2009 low, now resistance at 83.71. We expect strong AUD and weak JPY going forward, buy dips.

Our outlook

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