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Comprehensive FX and Futures Daily Research

Mon, Apr 27 2009, 13:15 GMT
by FastBrokers Research Team

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EUR/USD

The EUR/USD is selling off sharply Monday in reaction to the Swine Flu created worldwide panic. An outbreak with pandemic potential is the last thing anybody wants to see, especially in such fragile economic times such as these. Investors are starting to price in a drop in global tourism and consumption, which could really take the wind out of the economic recovery’s sails. However, we wouldn’t call today’s downturn severe by any means. In fact, the Euro is showing relative strength after last week’s flood of better than expected data. However, if the threat of the Swine Flu should pick up speed on an international level, we wouldn’t be surprised to see most major Dollar pairs selloff in a hasty fashion with investors running for the hills. Today’s economic data news is minimal, and the EU will be pretty quiet on this front throughout the week. We can’t say the same for the U.S., which will be releasing Prelim GDP on Wednesday. Therefore, all Dollar pairs could experience high volatility. The EUR/USD is holding up pretty well fundamentally, exchanging comfortably above the highly psychological 1.30 level. On the other hand, it looks like the downtrend is taking hold with the S&P futures blowing an opportunity to set new April highs. The EUR/USD should continue to obey its positive correlation with U.S. equities while maintaining its relative strength as long as its economic data outperforms. The currency pair is trading below all three of our downtrend lines and has sunk below our 1st tier uptrend line. Hence, should U.S. equities sell off further, the EUR/USD could retrace towards our 2nd tier uptrend line.

Fundamentally, we find supports of 1.3109, 1.3068, 1.3014, 1.2980, and 1.2917. To the topside, we see resistances of 1.3143, 1.3178, 1.3211, 1.3269, and 1.3297. 1.30 acts a key psychological cushion while 1.35 serves as a psychological barrier. The EUR/USD is currently exchanging at 1.3129.




GBP/USD

The Cable is under pressure just as the EUR/USD due to the global threat of the Swine Flu. As we explained in our EUR/USD commentary, the disease could have dire economic consequences if it were to reach a pandemic proportion. As a result, investors are fleeing to the Dollar and Yen Monday for safety. In addition to the health scare, the Cable received some bad news on the economic front. Today’s Mortgage Approvals number came in short of analyst expectations. The underperformance of Mortgage Approvals is disheartening because the economic indicator improved over its previous three releases. Hence, the dip echoes the concern that we could be witnessing a ‘head fake’ in economic data in what is a long path to the downside. However, we’ll have to see how the Mortgage Approvals data fares next month before we jump to any conclusions. That being said, the collapse of the housing industry is at the head of the economic crisis, and further deterioration in housing only stokes fears that the worst of the crisis has not been realized. Regardless, the Cable is performing relatively well considering today’s negative developments. Investors came to the Cable’s defense at 1.45. However, we could see the present downturn gain momentum should the GBP/USD drop beneath 4/21-4/22 lows.

Fundamentally, we find resistances of 1.4626, 1.4677, 1.4730, 1.4773, and 1.4826. To the downside, we see supports of 1.4567, 1.4532, 1.4481, 1.44437, and 1.4387. 1.45 serves as a psychological cushion with 1.50 acting as a key psychological barrier. The GBP/USD is currently exchanging at 1.4582.




USD/JPY
The USD/JPY has dropped below our previous 1st tier trend line, and this should be a great cause of concern for the bulls. We could really see the selloff pickup speed today as investors sprint towards the Dollar and Yen for safety from the Swine Flu. Our previous 1st tier uptrend line and 1st tier downtrend lines are reaching an inflection point today, creating a perfect storm for the USD/JPY. The all around strength of the Yen comes despite an extremely negative economic outlook from Japan. Japan sees industrial production and exports declining 23.4% and 27.6% in the fiscal year vs. previous estimates of 4.8% and 3.2% declines, respectively. Not to mention Japan foresees a 3.3% drop in GDP and an unemployment rate of 5.2%. To make matters worse, Japan expected the CPI to drop much more than expected with deflation taking control of prices. These are horrible numbers folks, and they show the global economic crisis may be far from over. One might expect the Dollar to appreciate on the news of the Japanese economy worsening since the currency pair is being priced on the comparative economic performance between the two nations. However, investors are showing the estimates from Japan imply the U.S. will have its fair share trouble as well. The plummeting level of exports only highlights the economic struggles of America. The downtrend seems to be in the driver’s seat right now and we have a negative outlook on the USD/JPY.

Fundamentally, we find resistances of 97.11, 97.98, 98.56, 99.20, and 99.79. To the downside, we see supports of 96.33, 95.55, 95.04, 94.48, and 93.57. The 100 level serves as a key psychological barrier with 95 acting as a psychological cushion. The USD/JPY is currently exchanging at 96.54.




Crude Oil

The extreme volatility in crude continues. Just when you thought the crude futures had gained some positive momentum, they reverse course with a passion, smacking bulls in the face. The crude futures have crashed below our 2nd tier downtrend line and the highly psychological $50/bbl. Crude bowed to our 1st tier uptrend line in the process, and is making investors question which trend is truly in control. The negative performance of crude comes in reaction to the Swine Flu. The outbreak of the Swine Flu will likely hit international travel, taking a large bite out of the airlines’ consumption of crude. With weekly crude inventories missing sharply to the upside the past two weeks, the Swine Flu only saturates crude’s aggregate supply, sending price sharply lower. To make matter worse, the present performance of crude could be pointing at a significant decline in U.S. equities. If the S&P futures were to crash beneath our 2nd tier downtrend line, the selloff in crude could pick up from here due to their tight positive correlation. Negative performance in U.S. corporations hinders the demand side’s recovery. Coupled with the supply shocks taking place, it is difficult to be positive on crude. On a lighter note, crude futures have managed to recover above April lows, keeping a glimmer of hope alive for the uptrend.

Fundamentally, we find supports of $48.78/bbl, $48.33/bbl, $47.86/bbl, $47.53/bbl, and $46.79/bbl. To the topside, we see resistances of $49.22/bbl, $49.66/bbl, $50.10/bbl, $50.44/bbl, and $51.02/bbl. $50/bbl turns becomes a key psychological barrier again while $45/bbl serves as a psychological cushion. Crude is presently trading at $48.11/bbl.




Gold

Gold is weakening Monday despite U.S. equities prepping to open lower. The precious metal is edging below our 3rd tier uptrend line, and a breather from recent gains isn’t too surprising. Gold seems to be making a commitment to $900/oz+, a key development fundamentally. The precious metal is still finding strength in the knowledge that China is diversifying more of its reserves towards gold. Furthermore, gold is thriving in the fact that the S&P futures have been unable to break out of their own key fundamentals. However, one cause for concern for gold is the fact that CPI data continues to trend downwards worldwide, reigniting the fear of deflation. Deflation wrapped its hands around gold during the height of the economic crisis, dragging down the precious metal with equities. Hence, it is reasonable to stay cautions on a medium-term trend basis. That being said, we have some very interesting, longer-term trend lines playing key roles in our analysis. If gold were to climb above our 3rd tier downtrend line, we could see the precious metal explode to the upside. Then again, we must take note of the downtrend, and the fact that the recent progress made can be wiped away. Gold is trading above our 3rd tier uptrend line and the ball is in the uptrend’s court until further notice.

Fundamentally we find resistances of $913.47/oz, $916.16/oz, $919.54/oz, $922.69/oz, and $925.04/oz. To the downside, we see supports of $910.88, $908.86/oz, $905.94/oz, $903.83/oz, and $901.41/oz. Gold is currently trading at $912.15/oz.




S&P

The S&P futures are heading south Monday morning as investor anxiety heightens in reaction to the Swine Flu. Saddled with the burden of a global economic crisis, a worldwide health concern is the last thing U.S. equities need. Fragile corporations need forces adding to, not detracting from consumption and international travel. The S&P futures were making significant progress fundamentally prior to the outbreak of Swine Flu. The futures had overcome our crucial 3rd tier downtrend line, but failed to close above April highs. The S&P futures have been hit with an unexpected form of uncertainty, adding an ill-fated barrier to the topside. U.S. equities could be sent tumbling lower if the Swine Flu were to spread and mutate into a dangerous strain outside of Mexico. However, the S&P futures are holding on for now, and could be wedged between our uptrend line and 3rd tier downtrend lines until the U.S. releases its Prelim GDP on Wednesday. This is a critical time for the S&P with new highs and a large breakout within reach. Investors have weathered disappointing corporate earnings and the news that at least one U.S. bank will need more federal funding, all in the hope that the global economic crisis is abating. Unfortunately, the possibility of systemic risk remains and the threat of Swine Flu only adds one more concern to an overloaded plate. Correlation wise, crude has collapsed back below $50/bbl while gold’s uptrend holds steady. On the FX side, the EUR/USD and GBP/USD have each sold off with the USD/JPY facing its demons to the downside. Hence, all of the ingredients are into the kitchen for the S&P futures to cook up a heap of losses. As a result, although near-term momentum remains in the uptrend’s favor, the downtrend is threatening once more.

Fundamentally, we find resistances of 853, 860.75, 867 and 872.75, respectively. To the downside, we see supports of 846.5, 840.25, 833.5, 825.25, and 820. The S&P futures are currently trading at 850.00.


30 Year

The 30 Year T-Bond futures are heading higher Monday, exercising their negative correlation with U.S. equities. However, the 30 Year futures haven’t made any noteworthy fundamental moves to the upside and the downtrend remains in clear control. If the present pullback in the S&P futures were to turn into a large selloff we wouldn’t be surprised to see a corresponding rally in the 30 Year futures. Although, as we’ve witnessed since the announcement of quantitative easing, every move to the upside has failed to materialize into anything noteworthy. The 30 Year’s downside preferential reflects the huge supply of treasuries needed to fund America’s economic stimulus and recovery measures. Hence, the use of quantitative easing is not solving the problem, merely tempering volatility. On a positive note, the 30 Year futures have managed to stay above March lows, preventing a catastrophic selloff.

Fundamentally, we find supports of 124.78, 124.36, 124.03, 123.69, and 123.33. To the topside, we see resistances of 125.19, 125.53, 125.81, 126.20, and 126.67. The 30 Year futures are presently trading at 124 30.0.





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Published on  Mon, Apr 27 2009, 13:22 GMT