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Technical Research

Comprehensive FX and Futures Daily Research

Mon, Jul 13 2009, 16:11 GMT
by FastBrokers Research Team

FastBrokersFX

Daily Market Commentary


EUR/USD Resilient after Last Week’s Optimistic Data


The EUR/USD is climbing above our 2nd tier uptrend line as it re-approaches the psychological 1.40 mark once again. The Euro is showing relative strength across the board after last week’s releases gave hope to the German and French economies. The Euro’s resilience is revealed in the encouraging performance of the EUR/GBP, which has stabilized above several of our near-term downtrend lines. It seems it’s the Euro’s turn to accelerate after several setbacks, and we believe the EUR/USD could have a little more room to run to the upside for the immediate term. However, the negative sentiment in the market hasn’t changed, meaning the overall momentum remains to the downside. Investors are getting for tomorrow with economic data picking back up and 2nd quarter earnings reports hitting the wires. The EUR/USD should maintain its relative strength for the coming week barring any large disappointments from the EU’s economic sentiment, industrial production, or CPI.

The EU will release important economic sentiment data along with industrial production on Tuesday. Investors are expecting to see a continual improvement in consumer sentiment as the number approaches 50, or the barrier between growth and contraction. Investors are also looking for as sharp reversal in industrial production from June’s reading of -1.9%. Expecting 1.5% may be setting the market up for disappointment since we’ve seen industrial production come in below the median analyst predictions for the past two months. In addition to key data points from the EU, the U.S. will release retail sales, PPI, and business inventories tomorrow. Therefore, considering we’re entering the beginning of the 2nd quarter earnings season, the EUR/USD has the potential to become volatile over the next few trading sessions.

The EUR/USD made some encouraging technical moves last week after bottoming out comfortably above June lows on July 8th . Since then, the EUR/USD has bounced off of our 1st tier uptrend line several times. Though the EUR/USD popped past 1.40 on July 9th, the currency pair has since retraced, and 1.40 continues to be a formidable foe to the upside. Hence, 1.40 and June 9th highs should serve as hefty immediate term obstacles. The EUR/USD may drift higher for the time being until our 3rd tier downtrend line reaches our 1.4065 resistance. Despite the positive near-term developments in the EUR/USD, we’ve seen volume declining steadily to the upside, meaning the EUR/USD’s run could top-out in the next day or two. As for the downside, any reversal below July 10 and/or July 8 lows on rising volume would raise a red flag.


Present Price: 1.3975
Resistances: 1.3991, 1.4020, 1.4050, 1.4065, 1.4091
Supports: 1.3970, 1.3944, 1.3915, 1.3889, 1.3865
Psychological: 1.40

GBP/USD Balances Despite Broad-Based Weakness of Pound



The Cable appears to be bottoming out above July 8th lows as the currency pair avoids another retest of the psychological 1.60 level. However, as we anticipated, the optimism surrounding the BoE holding its level of QE steady was short-lived. Thursday’s rally in the GBP/USD stalled after the currency pair failed to receive noteworthy volume on the buy-side. As a result, the Cable has dipped back into risky territory with our 2nd and 3rd tier downtrend lines and July highs bearing overhead. Technical keys for the Cable to the downside will be staying above the psychological 1.60 level, July lows, and our 1st tier uptrend line. Regardless of the downward pressure in the Cable, the 1.58-1.61 area should continue to be a heavy-handed trading zone. Therefore, it would likely take a large pullback couple with abnormally high volume to break the Cable’s near-term support system.
The Pound is experiencing broad-based weakness after Britain’s Halifax HPI and manufacturing production data points disappointed analysts. Last week’s data continues a theme of economic setbacks in Britain after around six weeks of solid data releases from the U.K. Therefore, it seems the tables have turned, and the EUR/GBP is finally building some substantial momentum to the upside. However, despite the negative weight dragging down on the Cable, we wouldn’t be surprised to witness further stabilization.

News is a little light today, and investors are likely to take a deep breath before tomorrow’s large dose of economic data. Britain will begin with some important housing numbers late Monday, followed by the CPI and RPI early Tuesday. Investors are expecting the CPI to continue its contraction with a reading of 1.8%. Any number below 1.8% could spark the fear of deflation, resulting in a sizable pullback in the GBP/USD. In addition from the British data points, the U.S. will release retail sales, PPI, and business inventories on Tuesday. We also can’t forget that the 2nd quarter earnings season is just getting started. The earnings reports should be market moves if the numbers surprise in either direction. As a result, there should be a strong correlation between the Cable and U.S. equities for the near-term.


Present Price: 1.6130
Resistances: 1.6152, 1.6212, 1.6264, 1.6314, 1.6346
Supports: 1.6129, 1.6079, 1.6026, 1.5978, 1.5919
Psychological: 1.60






USD/JPY Tries to Balance above July Lows


The USD/JPY is trying to stabilize today after its key selloff on July 8th. As we noted before, the USD/JPY darted below our 1st tier uptrend line as it collided with our 1st tier downtrend line, normally a negative statement regarding trend. Though the USD/JPY’s volume shot up from recent levels, the volume registered on July 8th didn’t reach a height you’d expect to see on a key movement. This tells us one of two things, either there is another large confirming near-term selloff approaching, or investors aren’t prepared to test the murky waters of January lows. We still believe July 8th’s downturn was a statement, possibly a warning shot of what’s to come. While we expect the USD/JPY to retest the psychological 90 level at some point, 88-90 should act as a worthy cushion to the downside. Therefore, bulls shouldn’t overly concerned at this point. After all, 2008/2009 lows are very important psychologically and economically, so it would take a huge negative wave to wash away the USD/JPY’s defenses. As for the upside, getting back above our 1st tier trend lines would be an encouraging development and could alter our negative outlook.

Last Tuesday Japan reported discouraging Core Machinery Orders and Current Account data. These data points signal the Japanese economy continues to feel pressure from declining demand for its manufactured goods both at home and abroad. Lower Japanese corporate earnings and higher unemployment are pinching domestic demand. The discouraging Current Account number makes investors worry that international consumption is not picking up as quickly as the improvement in global consumer sentiment data may suggest. An appreciating Yen should only make matters worse, so a declaration of the downtrend by the USD/JPY could be very bad news for Japan.

Investors will be keeping a close watch on U.S. corporate earnings and economic data releases this week. Any significant disappointments on the earnings or data front could result in a sizable pullback in the S&P futures. Considering the USD/JPY is positively correlated with U.S. equities, this could result in the retest of 90 as we mentioned before.


Present Price: 92.31.
Resistances: 92.57, 93.32, 93.76, 94.45, 94.99
Supports: 91.96, 91.50, 91.03, 90.28, 89.86
Psychological: 90, 95






Gold Bounces after Heavy Losses


Gold is bouncing between our 2nd tier uptrend and 3rd tier downtrend lines as volume continues to wane after July 8th’s large pullback. We haven’t noticed any considerable volume on the buy-side since, telling us the bears are still in the driver’s seat. However, the precious metal is hesitating as it flirts with the concept of retesting the psychological $900/oz area. Considering $900/oz is a critical level psychologically, the $890-$900/oz zone should prove to be a tough near-term battle-zone should it be breached. Meanwhile, all eyes are on the S&P futures and their ability to stay above May 18 lows with investors eagerly awaiting the heat of the 2nd quarter earnings season. Additionally, crude is wrestling with its own psychological $58-$60/bbl zone. Considering gold is positive correlated with both the S&P and crude futures, all three invest investment vehicles are sending a clear message that the overall market is at a psychological pivot point. Though present momentum remains to the downside, a surprisingly positive earnings season could turn the tide. On the other hand, a disappointing earnings season would only exacerbate the downward pressure on price and likely knock out gold’s $900/oz psychological level. With gold getting squeezed between our 2nd tier uptrend and 3rd tier downtrend lines, something’s gotta give. If the 2nd tier uptrend line gives way, a retest of $900/oz become much more likely.

Present Price: $909.15/oz
Resistances: $910.84/oz, $914/25/oz, $915.61/oz, $918.49/oz, $920.02/oz
Supports: $908.58/oz, $906.34/oz, $903.72/oz, $901.58/oz, $900.08/oz
Psychological: $900/oz






Crude Sets Fresh July Lows


Crude futures have set new July lows as the futures wobble ahead of the uncertain 2nd quarter earnings season. Weakness in crude comes despite another set of attacks by Nigerian rebels, this time in the city of Lagos. The rebels attacked a jetty at the port of Lagos used to load crude onto transport ships, setting containers on fire and killing several men. Nigerian rebels continue to administer supply shocks to crude, although we haven’t seen much of a response in the futures this morning. Crude is now barreled in the $58-$61/bbl trading range we spoke of before while our 1st tier uptrend line creeps towards price. Though crude will likely stabilize between our 1st tier uptrend and downtrend lines today due to the lack of economic/earnings news, we expect the market to become more volatile on Tuesday with key reports surfacing from around the globe.

The market mover tomorrow for crude futures should be the retail sales report coming from the U.S. Retail sales tend to impact crude since they indicate the overall state of the consumer. Lower retails sales imply higher savings and less consumption, having a negative impact on crude. Therefore, investors will be anxious to see whether retail sales can stay positive. Naturally, 2nd quarter earnings are the most highly anticipated news out there right now. Investors want to see if the encouraging improvements we’ve seen in global economic data yield material results in corporate performance. Stronger corporate performance and positive outlook implies an increase in production and manufacturing, accompanied an increase in consumption of crude.

Though crude has experienced a steep decline so far this month, volume is cooling off to the downside, meaning crude could find a new bottom soon. Whether the bottom proves to be temporary or lasting remains to be seen. Our 1st tier uptrend line should be a key cushion for the near-term along with March 18th lows. A break below either of these marks could result in another pullback towards the psychological $55/bbl level. As for the upside, the psychological $60/bbl level could become a psychological barrier. Additionally, our 1st tier downtrend line and July 9th highs serve as key technical barriers to the upside. Should these three obstacles fall with large volume, we could witness a nice near-term run in crude. However, momentum remains to the downside, and it will take a noticeable shift in sentiment to turn the tide.


Present Price: $58.83/bbl
Resistances: $58.90/bbl, $59.37/bbl, $59.97/bbl, $60.73/bbl, $61.29/bbl
Supports: $58.55/bbl, $58.23/bbl, $57.87/bbl, $57.52/bbl, $56.72/bbl
Psychological: $55/bbl, $60/bbl






S&P Futures Pop after Analysts Provide Rosy Outlook for GS, BofA


The bulls are back in action after heavy-weight investment analyst Meredith Whitney upgraded her near-term outlooks for Goldman and BofA during an interview on CNBC. Whitney is a sharp, well-respected analyst, so her statements are really giving the markets a boost. Bulls were waiting to run with any kind of positive news earnings-wise, and they’re getting a little this morning. However, investors should keep in mind Whitney cautioned her positive outlook on the Goldman and BofA is only a near-term trading play. In addition to Whitney’s upgrade of the banking sector, Philips issued an upbeat earnings report to go along with Alcoa’s better than expected performance last week. Therefore, even though we haven’t seen much of earnings season yet, it has certainly gotten off to a good start.

The S&P futures are presently fighting to get above our 1st downtrend line with our 2nd tier not so far away. Though there’s still a dominant negative momentum at work, the S&P futures are making a case for a return to respectability. However, the futures will need to deal with the tangled mess of our 1st tier uptrend line and 1st and 2nd tier downtrend lines along with the highly psychological 900 level. Hence, there are several near-term challenges ahead of the S&P to the topside. Even though Meredith Whitney gave a positive outlook for the banking sector, we still haven’t seen any concrete results. Therefore, the S&P futures may forgo any key technical moves to the upside until the earnings reports come in. In addition to second quarter earnings, the U.S. has some important economic data on deck tomorrow. Investors will receive retail sales, PPI, and business inventories. Analysts are expecting retail sales to stay in positive territory and for producer prices to pick up a bit. Any large setback in retail sales could place further downward pressure on the S&P for the near-term.

Meanwhile, most of the S&P’s correlations are stabilizing, apparently entering a ‘wait and see’ mode. Crude futures remain the underperformer of the group with reduced long-term demand expectations from the OPEC and IEA taking its toll on price. Investors should keep a close eye on volume and the S&P’s interaction with its aforementioned barriers.

Present Price: 890.00
Resistances: 892, 898, 903.5, 909.25, 914.75
Supports: 888.25, 884, 880.75, 876.5, 873.25
Psychological: 900






Disclaimer: FastBrokers' market commentary is provided for information purposes only and under no circumstances should be regarded neither as investment advice or as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained. All materials are property of Fast Trading services, LLC and unless otherwise indicated, any unauthorized reproduction is prohibited.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

Published on  Mon, Jul 13 2009, 16:16 GMT