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Technical Research

Comprehensive FX and Futures Daily Research

Mon, May 4 2009, 14:04 GMT
by FastBrokers Research Team

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EUR/USD

The EUR/USD is selling off Monday after the currency pair failed to get follow-through volume to the upside during Friday’s trading session. Hence, the EUR/USD has failed to tackle 4/30 highs, and could be declining to set a 3rd bottom in a head and shoulders formation. The keys to success in a continuation of the uptrend will be staying above 4/30 and 3/30 lows. If the 2nd key doesn’t hold, we could witness a subsequent sharp movement to the downside. Intraday, we are seeing the inflection point of our 3rd tier downtrend line and 2nd tier uptrend line. The inflection point occurs just below our 1.3208 support and just above 4/30 lows, highlighting the near-term significance of this level. Meanwhile, the EUR/USD will need a surge in volume to the upside to plow through 4/30 highs. Although we may see further weakness in the near-term, we maintain our bullish outlook on the EUR/USD until the aforementioned keys are broken.

The EUR/USD released weaker than expected German Retail Sales and Sentix Investor Confidence numbers earlier today. However, we don’t view the data as game changing, particularly German Retail Sales since it tends to fluctuate within a reasonable range and the German economy is more manufacturing-focused. FX investors will be paying closer attention to America’s Pending Home Sales release in a few hours. Analysts are expected continued stabilization in this area, and the data is heavily-weighted since the economic crisis began with a malfunctioning housing market. We expect to EUR/USD to remain positive correlated with the S&P futures for the next few sessions as investors eagerly await the ECB’s meeting on Thursday.

The ECB’s meeting on Thursday will be critical since the ECB governors have offered various opinions as to the direction of the central bank’s monetary policy. The ECB has maintained its benchmark rate at a respectable level while avoiding liquidity measures such as quantitative easing. The uncertainty among investors could keep any uptrend in check as investors eagerly await results from the meeting. The ECB’s announcement will come on the same day as America’s stress test results, meaning we expect to see a large spike in volatility on Thursday.

Fundamentally, we maintain resistances of 1.3236, 1.3295, 1.3329, 1.3389, and 1.3420. To the downside, we hold supports of 1.3208, 1.3170, 1.3127, 1.3089, and 1.3039. The 1.30 area serves as a psychological cushion with 1.35 acting as a psychological barrier. The EUR/USD is currently exchanging at 1.3231.




GBP/USD

The rally in the Cable is pulling back after Friday’s insufficient volume failed to push the GBP/USD above the highly psychological 1.50 mark and April highs, the two barriers to a lasting uptrend. If volume wanes, we wouldn’t be surprised to see more profit-taking in the currency pair. The Cable has ducked back below our 3rd tier uptrend line while our 2nd tier uptrend and downtrend lines reach an inflection point. There is plenty of room between present price and our 2nd tier uptrend line, meaning the GBP/USD could have overextended itself. Therefore, if our present 1.4826 support doesn’t hold, it looks like the next stop for the Cable could be our 1.4730 level.

Despite near-term downward pressure, momentum remains to the upside since we saw some encouraging data again from Britain last week. Furthermore, the GBP/USD remains positive correlated with the S&P futures, which made some impressive strides of their own last week.
While volume could be light today, action should pick up as we approach Thursday’s ECB press conference and the release of the highly anticipated stress test results. Britain has a banking holiday today, meaning we won’t see any data until tomorrow’s Halifax HPI, Construction PMI, and Nationwide Consumer Confidence. The Halifax HPI comes a day after America’s Pending Homes Sales release, so we will get a better picture of the housing industry in both economies. If the data points come in better expected then we could see a nice boost to the upside in the GBP/USD.

Fundamentally, we find resistances of 1.4880, 1.4905, 1.4951, 1.5009, and 1.5059. To the downside, we see supports of 1.4826, 1.4773, 1.4730, 1.4677, and 1.4626. 1.45 serves as a psychological cushion with 1.50 acting as a key psychological barrier. The GBP/USD is currently exchanging at 1.4856.




USD/JPY

The USD/JPY is trying to build on Friday’s bounce, flirting with the idea of retesting 100 while the S&P futures battle their own demons at 900. Unfortunately, yesterday’s run was backed by light volume, meaning the currency pair’s current upswing could be short-lived. The USD/JPY encounters its first test in our 3rd tier downtrend line, followed by March highs. We notice a head and shoulders formation with the USD/JPY on its right shoulder as we type. Therefore, bulls will be looking for any near-term upward movement to be supported by heavy volume if the currency pair is ready to surpass 100 and April highs.

While the upside has its apparent hurdles, the downside is backed by our 2nd tier uptrend line and the resilience the uptrend has shown thus far in 2009. The USD/JPY’s re-approach of 100 comes with the S&P futures attempting to climb above their critical 900 level. Therefore, the significance of the moment is relayed by each as investors await Thursday’s ECB meeting and the release of America’s stress test results.

Fundamentally, we find resistances of 99.79, 100.56, 101.43, 102.14, and 103.15. To the downside, we see supports of 99.20, 98.56, 97.98, 97.11, and 96.33. The 100 level serves as a key psychological barrier with 95 acting as a psychological cushion. The USD/JPY is currently exchanging at 99.42.




Crude Oil

Investors are taking profits in crude after Friday’s impressive gains. Friday’s jump came on large volume as crude futures manage to get back into the 4/9-4/17 trading range. The positive performance in crude was in reaction to better than expected Manufacturing PMIs from both America and Britain. More manufacturing implies greater consumption of crude during the production process and transportation of finished goods. As a result, crude has completely recovered 4/20’s steep losses while trading comfortably above the highly psychological $50/bbl. Even more impressive, the rise in crude comes in the face of a 3rd straight week of climbing inventories. Therefore, crude futures are riding on the back of rising U.S. equities and improvement in economic data as investors discount the present decline in consumption of crude and look into the future.

Technically speaking, crude futures need to get above the mess of March and April highs in order to log substantial gains, which will likely require large volume. Meanwhile, crude is turning its back on $50/bbl, a positive development psychologically. The momentum is in the favor of the upside at the moment as it is with U.S. equities. Therefore, we maintain our positive stance on Crude for the time being. However, whether crude sets a new 2009 high ultimately depends on the S&P futures’ ability to overcome 900.

Fundamentally, we find supports of $53.16/bbl, $52.83/bbl, $52.29/bbl, $51.98/bbl, and $51.66/bbl. To the topside, we see resistances of $53.63/bbl, $53.97/bbl, $54.34/bbl, $54.77/bbl, and $55.24/bbl. $50/bbl turns becomes a key psychological cushion again while $55/bbl serves as a psychological cushion. Crude is presently trading at $53.60/bbl.




Gold

Today’s early rally in gold is selling off as the upward movement failed to attract substantial volume. Meanwhile, the precious metal is drifting below the highly psychological $900/oz mark and 4/29 highs. Gold remains lodged in our downtrend dating back to February with the S&P futures approaching their own highly psychological 900 level. What should stick out are the counterbalancing momentums as the negatively correlated investment vehicles battle with their respective critical levels. With the upward momentum seemingly on the side of U.S. equities, it is difficult to have a positive outlook on the precious metal right now trend wise. However, the performance of gold has been particularly unpredictable, so there may be more reliable investment vehicles out there. To the downside, the next stop for gold appears to be our 2nd tier uptrend line and our $884.70/oz support. If the precious metal can manage to climb back above today’s high, then the next meaningful barrier would likely be our $897.30/oz resistance.

Today’s activity should come down to the Pending Home Sales data release from the U.S. Even though we maintain our bearish outlook on gold trend-wise, we wouldn’t be surprised to see a near-term pop in the precious metal should U.S. equities hesitate at 900.

Fundamentally we find resistances of $894.04/oz, $897.30/oz,
$899.72/oz, $903.59/oz, and $906.42/oz. To the downside, we see supports of $889.87/oz, $887.31/oz, $884.70/oz, $882.53/oz, and $880.03/oz. Gold is currently trading at $890.65/oz.





S&P

The S&P futures are hesitating just beneath 4/30 highs as investors await today’s Pending Home Sales release. The S&P is reaching a critical juncture fundamentally as they approach the highly psychological 900 level while our 3rd tier downtrend and uptrend lines reach their inflection point. Least we mention the fact that the stress test results will be released on Thursday with key manufacturing and unemployment data in the mix. On top of that, the ECB will announce its monetary policy decision on Thursday, giving us another reason to anticipate high volatility this week.

Despite the focus being on the stress test results, we believe the more significant trading will come on the results of economic data least we see any unexpected news concerning banks either on the positive or negative end. However, investors seem to have already priced in the belief that the stress tests will show several major banks will require more capital since several rumors have been leaked by the WSJ over the past week. Therefore, should economic data continue to show improvement while the stress test results come in as anticipated, we could see a rally on the news with the S&P eclipsing 900.

On the other hand, should economic data widely miss expectations with the anticipated negative stress test results, the S&P may not have the backing to move past its psychological barrier. Hence, this week’s economic data may play the deciding role in whether the S&P follows through on its rally. We must make a side note that Chinese manufacturing data turned positive this week, adding to the evidence that a global economic recovery is under way. However, on a cautionary note, China’s major banks reported disappointing earnings due to declining interest revenue despite record loans in the first quarter. Hence, China could be overexposing their banks credit wise as analysts forewarned. Hence, investors should keep a close eye on the performance of Chinese financials.

The S&P’s correlations are confirming out positive outlook on the S&P futures for the most part. Crude posted solid gains on Friday, and seems to be leaving its psychological $50/bbl in the past. Meanwhile, the 30 Year T-Bond futures already fell through their 4/29 lows as they remain lodged in their debilitating downtrend. FX wise, the USD/JPY, EUR/USD, and GDP/USD are all trending upwards, a positive sign for U.S. equities.

Fundamentally, we see resistances of 885.25 and 900. To the downside, we maintain supports of 877.25, 872.50, 866.50, and 861.25. The S&P futures are currently trading at 884.


30 Year

The 30 Year T-Bond futures are settling after their previous slip beneath 2/27 lows. The stabilization in the 30 Year comes as the S&P futures hesitate at their highly psychological 900 barrier. However, today’s upward movement comes on light volume thus far compared to the key selloff on 4/29. We say key because the 30 Year futures finally followed through on what they’ve been walking towards since mid-March, breaking below previous 2009 lows. Since 4/29’s decline came on comparatively large volume, we wouldn’t be surprised to see the selloff pickup speed soon. The continuation of the 30 Year’s decline clings to the fate of U.S. equities and the S&P’s ability to overcome 900. With economic data and stress test results on the way, we wouldn’t be surprised to see volatility pick up significantly as the week progresses. The 30 Year futures remain lodged well below our multiple downtrend lines, supporting the continuation of our negative outlook.

Fundamentally, we find support 121.83 with nothing else holding it up in the near-term, normally a negative sign. To the topside, we see resistances of 122.33, 122.73, and 123.10. The 30 Year futures are presently trading at 122 05.5.





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Published on  Mon, May 4 2009, 14:14 GMT