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Cable Strengthens On CPI While USD/JPY Poised To Breakout

Tue, Mar 24 2009, 11:53 GMT
by FastBrokers Research Team

FastBrokersFX  |  View company's profile

USD/JPY

The Dollar is making headway against the Yen, pushing through our 2nd tier downtrend line while backing away from our 3rd tier. The negative Business Survey Index number is really taking its toll on the Yen. With the Japanese economy slowing much faster than America’s and both central banks participating in quantitative easing, investors are leaning towards the Dollar as a safe haven as compared to the Yen. Perhaps investors are also betting that the BOJ will need to implement additional quantitative easing and economic stimulus measures to buoy the economy, further deflating the Yen. On a positive note, the farther the USD/JPY rises, the more Japanese manufacturers and exports find relief in lower input costs and the possibility of higher demand. With the USD/JPY approaching February highs, the currency pair seems poised to break out and make the 100 psychological resistance a distant memory. Fundamentally, we find resistances of 99.00, 99.79, 100.69, and 101.53. To the downside, we see supports of 98.11, 97.49, 96.65, and 95.92. The USD/JPY is currently exchanging at 98.21.



GBP/USD

The Cable continues its impressive run and is charging ahead Tuesday in much better than expected Mortgage Approvals, CPI and Relative Price Index. Mortgage Approvals have outperformed analyst expectations for the 3rd straight release. Britain’s housing market seems to have found a bottom, reigniting hopes the worst of the economic crisis may be behind us. Additionally, outperformance in the CPI and RPI indicate prices are stabilizing and rising. The GBP/USD is running with all of the positive FX news, popping past February 23rd highs with no foreseeable barriers left between present price and 2009 highs. Therefore, we anticipate more near term gains for the Cable. Meanwhile, our uptrend and downtrend lines are fading into the distance. If the GBP/USD can manage to rise above February highs, then the currency pair could really take off. However, the 2009 highs and the highly psychological 1.50 level will certainly be formidable foes to the upside. Fundamentally, we maintain our resistance of 1.4781 and find fresh resistances hanging at 1.4809, 1.4848, and 1.4893. The 1.45 area will serve as a psychological cushion with 1.50 acting as a highly psychological barrier. To the downside, we see supports of 1.4704, 1.44671, 1.4619 and 1.4570. The GBP/USD is currently exchanging at 1.4742.



EUR/USD

The EUR/USD is selling off slightly Tuesday as the consolidation continues. The currency pair is bouncing off our 1st tier uptrend line while sitting comfortably above our downtrend line, showing investors are holding onto the uptrend as U.S. equities make excellent strides fundamentally. The EUR/USD is experiencing weakness after a much weaker than expected Current Account, confirming the trend in yesterday’s Trade Balance. The EU is importing far more than exporting, resulting in a larger supply of Euros. On a positive note, all of the manufacturing and services PMIs came in slightly better than expectations, giving investors hope the economic slowdown is leveling off. Despite the improvement of data, the numbers are still discouraging since they reflect an environment of deep contraction. Regardless, the stability is comforting and investors will hope to see improvements across the board upon their next release. If the EU economy can manage to stabilize along with the U.S., the EUR/USD should experience considerable strength trend-wise since the ECB’s benchmark rate sits at a relatively comfortably level compared to that of the U.S. Additionally, the EU has not relied upon quantitative easing as America, Japan, and Britain have, giving the Euro a leg up in multiple areas. Fundamentally, we maintain our supports of 1.3554, 1.3494, 1.3427, and 1.3371. To the topside, we hold our resistances of 1.3624, 1.3688, 1.3724, 1.3800, and 1.3848. The 1.35 area becomes a psychological cushion with 1.40 serving as a highly psychological barrier. The EUR/USD is currently exchanging at 1.3552.




Crude Oil

Crude futures continued their ascent as U.S. equities shot up nearly 7%. Crude has reacted as expected after closing above the psychological $50/bbl and our 2nd tier downtrend line earlier this week. Despite the gains, the movement was calm considering the furious rally taking place on Wall Street. Perhaps crude futures are reaching overbought levels with 2009 highs approaching. With a lack of economic data from the U.S. today, crude investors are focusing on the incoming manufacturing PMI data from the EU. Higher levels of manufacturing yield greater consumption of crude during the production process and imply improving consumer sentiment, and falling manufacturing levels imply the opposite. It seems crude futures will need surprisingly positive production, manufacturing, or inventory data to catapult above January highs and the psychological $60/bbl level. For the time being, we wouldn’t be surprised to see some profit taking in crude, especially if data from the EU fails to meet expectations. Regardless, the uptrend remains comfortably intact. Fundamentally, we find supports of $53.30/bbl, $52.69/bbl, $52.36/bbl, and $51.87/bbl. The $50/bbl is a psychological cushion while $55/bbl serves a psychological barrier. To the topside, we hold our resistances of $53.77/bbl, $54.52/bbl, and $54.9/bbl with fresh top-end hanging at $55.45/bbl. $55/bbl serves as a psychological barrier and $50/bbl acting as a psychological cushion. Crude futures are currently trading at $53.45/bbl.



Gold

Gold has posted some heavy losses over the past 24 hours, exercising its positive correlation with U.S. equities as the S&P closed up over 7%. The previous metal briefly sunk below our 1st tier uptrend line on Tuesday, but is currently fighting back above with the S&P futures trading lower pre-market. The condition of Gold has deteriorated overnight considering last week’s huge rally. However, the last movements in negative territory have been backed by relatively low volume compared to March 19th’s up-bar. Therefore, since the large action is to the upside, we remain positive trend-wise on the precious metal as long as it can hold up around present levels. The positive correlation with U.S. equities is alive and well, and Gold’s movement will likely depend on the performance of stocks. If the S&P really can rocket past 800 towards 900, then we may have a change of heart with Gold. Meanwhile, the high volatility should continue for the time being. Fundamentally we see resistances of $935.34/oz, $939.27/oz, $942.91/oz, and $947.40/oz. To the downside, find supports of $931.98/oz, $927.78/oz, $924.69/oz, and $919.65/oz. Gold is currently trading at $934.20/oz.



S&P

The S&P futures are getting hit by some profit taking pre-market after Monday’s energetic rally. The S&P closed up over 7% while being led in large part by financials. The toxic asset plan was clearly accepted by investors as analysts hope creating a market for Mortgage Back Securities will help price and remove some of the derivative debt from bank balance sheets. The Treasury is hoping that removing toxic assets from the balance sheet banks will help ease credit requirements and get loans flowing again. On the dark side, the toxic asset plan is complex and requires a large amount of participation from private investors. Furthermore, isn’t leveraging private investment by up to 6:1 while investing in risky derivatives what got us in this mess in the first place? Also, how great of an exposure will the government take when all is said and done, and will the government be able to back out of the system after the market is settled? While we are simply thinking to ourselves, we believe these are issues that should be considered. Despite any uncertainty regarding the success rate of the toxic asset plan, the S&P futures surged through key fundamental and psychological barriers yesterday. Eclipsing our 3rd tier downtrend line and the highly psychological 800 market, the S&P has positioned itself for more near-term gains. However, we notice the volume being registered over the present rally has lacked the significance of the volume during the crash. This observation raises a cautionary flag in the background. The next challenges will be February highs and the psychological 900 zone. While Crude and Treasuries exhibited their proper correlations with equities, the movements were marginal considering the percentage gain in the S&P futures. However, Gold is posting some large losses, heading below our 1st tier uptrend line. In all, the correlations are showing we can’t be sure just how far north the equity rally will take us. Yesterday’s equity rally was fueled by a slightly better than expected Existing Home Sales number. The U.S. will take the day off from economic data until Wednesday’s Durable Goods Orders and New Home Sales. Don’t forget the U.S. will announce its Final GDP on Thursday. Fundamentally, we find resistance of 812.75 with additional resistances hanging at 822, 829, 836.75, and 844.75. The 850 level becomes a psychological barrier. To the downside, we see supports of 804, 794.5, 790.25, and 782.5. The 800 level serves as a psychological cushion. The S&P futures are currently trading at 812.00.

30 Year

The 30 Year T-Bond futures are dropping after our trend lines experienced an inflection point. The weakness in Treasury futures comes in reaction to soaring U.S. equity markets. However, Treasuries aren’t exercising their negative correlations with equities to the full extent, logging only marginal losses compared to the 7% gain in the S&P. Regardless, the 30 Year futures are heading back into the February trading zone with which competed with for quite some time. Even though the 30 Year futures are clearly below our downtrend line, we must consider the fact that the most significant volume day we’ve seen in a while came last week on an up-bar after the U.S. initiated quantitative easing. Therefore, the 30 Year futures do have the potential to turn the tide to the upside if U.S. equities were to plunge. However, considering equities are riding high on the toxic asset plan with the S&P finally over 800, the idea of a large retreat in equities seems far-fetched right now. Although, the U.S. will release its Final GDP on Thursday, and if the number is highly negative then the 30 Year can get a nice bump to the upside. All in all, the trend is still negative on the 30 Year futures until they can climb past our downtrend and attack last week’s highs. Fundamentally, we see resistance of 128.39 with additional resistances hanging at 128.84, 129.54, and 130.02. To the downside, we find supports of 127.92, 127.29, 126.73, and 126.22. The 30 Year Treasury Bond futures are currently trading at 128 04.0.

Published on  Tue, Mar 24 2009, 12:01 GMT