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Technical Research

Comprehensive FX and Futures Daily Research

Fri, May 29 2009, 12:46 GMT
by FastBrokers Research Team

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 EUR/USD

The EUR/USD has climbed steadily through all of our trend lines, 1.40, and is currently trading just above May 22 highs. This is a very bullish move, and it appears the currency pair is on the verge of a near-term breakout to the upside. The key will be sizable volume backing today’s movement. Today’s gains come despite a lower than expected CPI reading from the EU, meaning traders are feeding off of a strengthening S&P. Investors also saw stronger than expected German retail sales and M3 money supply. The rising M3 combined with a stabilizing economy means the ECB can feel more comfortable about maintaining their benchmark rate at its present level, with the possibility of rate hikes down the road. We also need to keep in mind that the ECB has played their cards conservatively as compared to the central banks of Britain and the U.S. Therefore, the Euro is in a relatively advantageous position to appreciate in the near-term should global economic conditions continue to improve. What has transpired over the last 24 hours seems to confirm our consistent bullish outlook. Though we may see a little weakness today due to intermittent profit-taking, the EUR/USD is making a clear statement. Meanwhile, our 1st tier downtrend and 1st and 2nd tier uptrend lines are all reaching an inflection point late Friday/early Monday. Therefore, we anticipate volume to pick up over the next few trading sessions.

With the EU finished for the week, investors will be paying close attention to U.S. equities and the release of Prelim GDP, Chicago PMI, and Revised Univ. of Mich. Consumer Sentiment. Should these data points beat analyst expectations and U.S. equities react positively this would only provide more fuel to the EUR/USD’s uptrend due to the strong positive correlation. In fact, the fundamental movements of the EUR/USD and the GBP/USD could be sending a message that U.S. equities are positioned for a breakout of their own. With economic data trending upwards around the globe, we are seeing a return to risk, which bodes well for the EUR/USD. We maintain our bullish outlook on the EUR/USD trend-wise due to the aforementioned reasons.

Fundamentally, we find resistances of 1.4078, 1.4117, 1.4187, 1.4222, and 1.4290. To the downside, we see supports of 1.4024, 1.3991, 1.3955, 1.3922, and 1.3889. The 1.35 area serves as a psychological cushion with 1.40 acting as a psychological barrier. The EUR/USD is currently exchanging at 1.4070.




GBP/USD

The Cable busted through our 2nd tier downtrend line and the psychological 1.60 level as investors return to risk. We view the defeat of our 2nd tier downtrend line as a significant move, giving a green light to the Cable’s bull trend. Our 2nd tier downtrend line stretches back to July 2008 highs, meaning the GBP/USD has a ton of room to the upside with all near-term downtrend pressures out of the way. Investors are reacting to a much stronger than expected Nationwide HPI release, showing home values are improving in Britain. Today’s release counters this week’s evidence that Mortgage Approvals are slowing down. After fighting off a dismal CBI release yesterday, bulls were waiting for a bit of good news to run with. Even though Britain’s economic releases have been mixed this week, investors should keep in mind Britain released a wave of optimistic data over the past month. Today’s key gains in the Cable reflect the fundamental movements made by the EUR/USD and crude. Therefore, investors are returning to risk in a hurry as the global economic climate improves.

Investors will be waiting for the key economic data surfacing from the U.S. today. If the numbers exceed analyst expectations, we could witness a strong near-term rally with U.S. equities depreciating the Dollar and sending the European currencies higher. Regardless, the Cable has made a statement showing that the bull trend is alive and well. Keep an eye on volume to see if it confirms the key upward movement occurring. We maintain our bullish outlook in the Cable due to the aforementioned reasons.

Fundamentally, we find resistances of 1.6129, 1.6233, 1.6307, 1.6388, and 1.6462. To the downside, we see supports of 1.6062, 1.6011, 1.5949, 1.5886, and 1.5822. The GBP/USD is currently exchanging at 1.6128.




USD/JPY

The USD/JPY’s run is fading quickly, backing away from our 2nd tier downtrend line while giving into the heavy downward pressures exerted on price. Present weakness in the USD/JPY comes after a head-turning 5.2% growth in industrial production, giving investors incentive to appreciate the Yen. Investors seem to be ignoring the decline in consumer prices and spending. We have seen improvement in machinery orders, exports, and now industrial production. Therefore, it seems the drivers of growth are recovering, meaning consumer behavior should improve soon as well.

Interestingly, investors are showing preference for the Yen vs. the Dollar, meaning the Japanese economy and balance sheet may be in better shape than America’s. We notice the broad-based depreciation of the Dollar. Now that the global economy is stabilizing, the U.S. will have to deal with the ramifications of its extraordinary injection of liquidity. Unfortunately for Japan, the longer the Yen trades at an elevated valuation against the Dollar, the longer exports to the U.S. will be hampered.

We can tell you that not much has changed fundamentally for the USD/JPY. Though Thursday’s gains came on rising volume, total volume was nothing to brag about. The currency pair is declining back towards our 1st tier downtrend line with 4 more downtrend lines bearing overhead, not to mention the highly psychological 100 level resting well out of reach. Therefore, we maintain our bearish outlook trend-wise on the USD/JPY. Bulls have their work cut out for them. The first key to the uptrend will be holding our 2nd tier uptrend line. If this line of defense doesn’t hold, we could see the present pullback pick up speed.

Fundamentally, we find resistances of 96.33, 96.90, 97.45, 97.98, and 98.69. To the downside, we see supports of 95.82, 95.12, 94.43, 93.77, and 92.65. The 100 level serves as a key psychological barrier with 95 acting as a psychological cushion. The USD/JPY is currently exchanging at 95.80.



Crude Oil

Crude continues its unbelievable uptrend, flying through our 2nd tier uptrend line and the psychological $65/bbl level without breaking a sweat. Yesterday’s upward movement was backed by impressive volume as investors reacted to a large drop off in weekly crude inventories. With inventories declining and OPEC standing pat on production, investors have an incentive to send crude futures even higher. Supply remains restricted while the decline in inventories signals an economic recovery is underway. Lower crude inventories only added to the excitement over the surprising rise in durable goods orders. The purchase of durable goods implies an optimistic consumer, resulting in more cars on the road coupled with a pickup in manufacturing, both positive for the demand side of crude. Meanwhile, the U.S. will release data concerning GDP, manufacturing, and consumer sentiment. If these economic indicators show improvement bulls will have all the ammo they need to finish the week strong.

We can’t ignore how quickly crude has risen from its yearly lows. Though the futures remain well off their $147/bbl high, the percentage gain over the past couple months is staggering. The question becomes where will crude top out? With gas prices rising at the pump, fragile consumers will find themselves restricted by this rising cost. Therefore, OPEC may have to consider where equilibrium price is, and how far they are willing to let the price of crude rise before opening up production. Regardless of these thoughts, it’s difficult not to be bullish on crude. There’s no near-term resistance in sight besides the psychological $70/bbl. However, we wouldn’t be surprised to see peak soon even if it is only to consolidate and allow investors to cash in some profits. We’re seeing incredible gains backed by huge volume, a clear indicator of a bull trend.

Fundamentally, we find supports of $65.80/bbl, $65.26/bbl, $64.67/bbl, $64.00/bbl, and $63.45/bbl. To the topside we see resistance of $66.25/bbl. $65/bbl becomes a psychological cushion with $70/bbl serving as a psychological barrier. The crude futures are currently trading at $66.09/bbl.




Gold

Gold finally made the bull move investors were waiting for, catapulting from our trend line inflection points while leaving the psychological $950/oz level behind. Though the rise of gold has been incredible over the last 24 hours, movement has come on declining volume, meaning the precious metal could top out soon. Regardless, previous May highs have been broken and a retest of the key $1000/oz seems imminent. Gold’s breakout comes with high flying crude futures, signaling inflation could be on the way. Since gold has exhibited a positive correlation with equities as of late. Therefore, gold’s impressive gains could be signaling a breakout in the S&P futures. Though we’re bullish on gold fundamentally, there are obviously a few more downtrend lines to deal with and $1000/oz, so there could be a rough road ahead.

Fundamentally we find resistances of $975.81/oz, $978.11/oz, $980.56/oz, $983.25/oz and $987.29/oz. To the downside, we see supports of $971.86/oz, $969.29/oz, $965.98/oz, $963.28/oz, and $961.45/oz. Gold is currently trading at $974.90/oz.




S&P

The S&P futures are edging up towards our 1st tier uptrend line as investors eagerly await the release of Prelim GDP followed by Chicago PMI and UofM Consumer Sentiment. The S&P continues to build up an incredible base around 900 as investors decided which way to go with a GM bankruptcy on the sidelines. The fact the S&P hasn’t retraced significantly from 900 is a positive sign, showing bulls are buying into the concept of a global economic recovery. Global economic data continues to trend upwards despite spots of concern, most notably in the U.S. housing sector and government paper. To get a better idea of the status of U.S. equities one needs to look no further than correlations.

The GBP/USD, EUR/USD, and gold have all made fundamentally significant breakouts to the upside over the past 24 hours. Meanwhile, crude futures continue their incredible ascent. Therefore, the S&P’s correlations are hinting at an upcoming breakout in U.S. equities. The near-term performance of the S&P will ultimately depend on the economic data released throughout the day. If the data exceeds analyst expectations we could see a sizeable breakout in the S&P futures. The keys for the S&P futures will be climbing above our 1st tier uptrend line and May 7 highs. If the futures can accomplish these two feats, there could be a near-term explosion to the upside. On the other hand, if today’s economic data disappoints we could witness an immediate pullback towards yesterday’s lows. The key for the S&P futures to the downside would be holding May 18 highs. However, due to the fundamental breakouts in the S&P correlations coupled with improving economic data across the globe we maintain our bullish outlook trend-wise on the S&P futures.

Fundamentally, we find resistances of 910.75, 915.5, 919.75, 926, and 930.25. To the downside we see supports of 903.75, 898.25, 893.5, 889 and 882.75. The S&P futures are currently trading at 911.25.


30 Year

The 30 Year T-Bond futures continue to stabilize above May 28 lows as investors try to avoid a fundamentally dangerous move in the yield. Concern is rising over the ability of the Fed’s quantitative easing package to counter the enormous supply of government paper being issued to fund America’s economic stimulus measures. As a result, investors are worried climbing Treasury yields could place unwanted pressure on a fragile U.S. economy. However, as we discussed previously, Treasury yields were already at deflated levels due to their normal positive correlation with U.S. equities. We recognize a medium-term downtrend line in the 30 Year yield, meaning we could reach a bottom soon in the 30 Year T-Bond futures. In fact, the futures have recovered nicely as investors bite on oversold conditions. If the 30 Year futures can climb above May 27 highs we could see an encouraging near-term pop.

That being said, the 30 Year yield is at a critical juncture. If the 30 Year futures don’t make a fundamental shift to the upside soon, we could continue to see a large rise in the yield. The pressure is still to the downside in the 30 Year with multiple downtrend lines bearing on price and large volume confirming the validity of the downturn. Hence, the 30 Year futures need a real game changer to turn to the tide. A note of interest is the present positive correlation between the 30 Year futures and U.S. equities. Since rising Treasury yields are worrying investors, climbing 30 Year futures are actually an encouraging sign for U.S. equities these days.

Fundamentally, we find supports of 117.55, 117.20, 116.75, and 116.14. To the topside we see resistances hanging at 117.98, 118.53, 119.34, and 119.83. The 30 Year T-Bond futures are currently trading at 117 23.5.







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Published on  Fri, May 29 2009, 12:53 GMT