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Comprehensive FX and Futures Daily Research

Thu, Aug 6 2009, 16:09 GMT
by FastBrokers Research Team

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EUR/USD Heads South Towards our 3rd Tier Uptrend Line


The EUR/USD is continuing its pullback as anticipated, stumbling towards our 3rd tier uptrend line as it appears the bulls have exhausted themselves. The ECB kept its monetary policy unchanged, also as anticipated. However, the BOE increased its QE package by $84 billion in order to try and counter deflationary forces. The BOE’s move is spooking FX markets a bit, appreciating the Greenback across the board. Furthermore, gold is consolidating while the S&P hovers around 1000 despite lower than expected weekly unemployment claims. The S&P’s lack of reaction to the Unemployment Claims number shows the present run is just about out of gas. Therefore, continued consolidation with a downward sloping pattern is likely as investors take a deep breath and recoup. However, the break may not last so long since both Britain and the U.S. will release more important economic data tomorrow along with Germany’s m/m Industrial Production number.

Speaking of data, a much better than expected Factory Orders number from Germany flew under the radar with the central banks grabbing the spotlight. The return to growth in German Factory Orders is holding steady, an encouraging sign for the EU economy as a whole. The EU is getting a positive piece of data at just the right time considering the underperformance of EU economic Data as of late. A positive German Industrial Production number tomorrow could help the EUR/USD build some relative strength. After all, the ECB is the central bank sticking to its guns while Britain digs deeper into its pockets to increase liquidity. However, the Euro’s comparative strength may not last long since the BOE’s injection should wear off rather quickly. Furthermore, regardless of any pullbacks, the momentum is still in favor of the uptrend since news and data out of the U.S. and Britain has been resoundingly positive over the past month.

As for the immediate-term, the EUR/USD may experience a little more selling pressure with investors cashing in on mixed global data. Therefore, we wouldn’t be surprised to see the currency pair duck down towards our 3rd tier uptrend line. Speaking of which, the EUR/USD is trading above all three of our uptrend lines with only a makeshift 3rd tier downtrend line clamping down the currency pair. The EUR/USD remains comfortably above June 3rd and July 28th highs. Hence, the uptrend is clearly in control in the moment, and it would take a large technical downward movement to dislodge the EUR/USD’s upward momentum.

Our 3rd tier downtrend line and the psychological 1.45 level appear to be the only near-term barriers separating the EUR/USD from a retest of December 18th highs. The other factor capping the EUR/USD’s upward mobility is the S&P’s interaction with 1000. The 1000 area should prove to be a challenging obstacle. The S&P’s ability to leapfrog 1000 should play an important role in the EUR/USD’s ability to overcome its own barriers to the topside. Therefore, investors should keep a close eye on U.S. equities and Friday’s key employment data. If either the U.S. Unemployment Rate or Non-Farm Employment Change are higher than anticipated the EUR/USD may experience heightened volatility to the downside. On the other hand, positive employment data would likely provide a strong counterbalancing force.

Present Price: 1.4363
Resistances: 1.4391, 1.4441, 1.4476, 1.4506, 1.4546
Supports: 1.4348, 1.4305, 1.4266, 1.4242, 1.4225
Psychological: 1.45







GBP/USD Gets Slammed after BOE Monetary Shock


The BOE delivered a monetary shock today, increasing its QE package by $84 billion despite our belief the central bank would refrain from injecting more liquidity. After all, we’ve seen very encouraging data from Britain covering services, manufacturing, housing and unemployment. However, it appears the BOE wants to be on the safe side, taking rampant optimism as an opportunity to deliver a blow to the Pound. The GBP/USD has been on a tear lately, placing the exportation of British manufacturing and services industries at a competitive disadvantage. Hence, the BOE is doing what it can to even the table. One worrying side-effect of today’s injection of liquidity is that Britain’s credit rating has been questioned over the past couple months due to a deteriorating governmental balance sheet. Therefore, even though Britain’s economy is on the path to recovery, additional debt runs the risk of compromising the nation’s credit rating if the global economy should experience a sizable setback.

The BOE’s injection of liquidity is having its desired effect, knocking the GBP/USD below our previous 3rd tier uptrend line on climbing sell-side volume. We believe the Cable could have quite a bit of room to the downside if it doesn’t recovery above our now 2nd tier uptrend line in a hurry. The next worthy supports to the downside appear to be August lows and October 30th highs. Therefore, a retracement towards 1.67 may be in the works. In the meantime, the GBP/USD may not get much immediate-term assistance from the S&P futures since they’re having a difficult time with 1000. The S&P futures aren’t reacting to the lower than expected weekly unemployment claims, showing bulls may be worn out and ready for more profit taking. However, more positive employment data from the U.S. and a better than expected PPI release from Britain tomorrow could help counteract the present pullback and get the GBP/USD back on track.

Meanwhile, investors should avoid having short-term memory loss right now. Economic data from Britain has been overwhelmingly positive lately, and the 2nd quarter earnings season has fared better than analyst expectations. Therefore, there’s little reason to be fundamentally negative on the GBP/USD. While the Cable has quite a bit of mobility to the downside due to its recent strong run, today’s monetary shock from the BOE should only prove temporary. Today’s injection of liquidity shouldn’t have the power to derail the GBP/USD’s medium-term uptrend on its own. Hence, investors should return to their senses after today’s shock wears off. As for the upside, the Cable will have to deal with our new 1st tier uptrend line along with August highs, our 2nd tier downtrend line and the psychological 1.70 level. It seems the GBP/USD will have to consolidate and build a new base before it can think about reattempting these barriers.

Present Price: 1.6809
Resistances: 1.6837, 1.6851, 1.6874, 1.6895, 1.6910
Supports: 1.6791, 1.6775, 1.6735, 1.6708, 1.6693
Psychological: 1.70






USD/JPY Pops Off our 1st Tier Uptrend Line


The USD/JPY is popping off our 1st tier uptrend line and is trading back above the psychological 95 level as we type. Today’s move higher is clearly an act of correlation. There’s no game-changing news on the wire from Japan, and the Dollar is appreciating rapidly against the Pound after the BOE’s injection of liquidity. We notice a broad-based appreciation of the Dollar as well as negative consolidation in both gold and the S&P futures. Hence, it seems investors are making a little run to safety in light of the BOE’s cautious stance at today’s monetary policy meeting. We believe the USD/JPY’s solid move higher clarifies this assumption as the currency pair benefits from a return to the Dollar.

Meanwhile, the USD/JPY is experiencing considerable strength along our 1st tier uptrend line. The USD/JPY has been resilient as of late, meaning the currency pair may have what it takes to test our 3rd tier downtrend line. Our 3rd tier downtrend line is the next blockade to the upside. Therefore, a test is likely as long as the USD/JPY creates some space between price and our 1st tier uptrend line. On the other hand, we’ve seen the USD/JPY make promising moves time and again, only to revert to its old consolidative habits and retrace back beneath our 1st tier uptrend line. Hence, bulls shouldn’t get their hopes up yet.

Present Price: 95.55
Resistances: 95.83, 96.16, 96.33, 96.77, 96.96
Supports: 95.41, 95.22, 94.99, 94.71, 94.46
Psychological: 95







Gold Jogs Between our Trend Lines Amid the Greenback’s Appreciation


Gold is bouncing between our 2nd and 3rd tier downtrend lines as the Dollar appreciates across the board. Investors are reacting to the BOE’s decision to administer a monetary shock by injecting another $84 billion into its QE package. The GBP/USD is under considerable pressure, hampering any excitement over lower than expected weekly Unemployment Claims. Meanwhile, the S&P futures continue to battle with their highly psychological 1000 level. It appears bulls may be running low on energy, implying consolidation in gold is the result of overbought conditions. We wouldn’t be surprised to see the precious metal continue its consolidation as the S&P deals with 1000. The bulls have been on a huge run lately, so it’s only healthy that the markets experience some profit taking and consolidation. Regardless, momentum is clearly in favor of the uptrend since economic data continues to outperform while 2nd quarter earnings season has exceeded expectations.

Meanwhile, gold is trading back above August 3rd highs with the psychological $950/oz level far out of reach. However, if the precious metal can’t hold our 2nd tier downtrend line, it may defect towards our 1st tier downtrend line and our bottom-end support. As for the topside, gold’s immediate barriers are our 3rd tier downtrend line and Tuesday’s highs. If the precious metal can get above these two obstacles, gold could accelerate towards $980/oz.

Present Price: $966.90/oz
Resistances: $966.91/oz, $968.60/oz, $970.04/oz, $971.44/oz, $972.83/oz
Supports: $965.26/oz, $963.81/oz, $962.24/oz, $961.00/oz, $959.34/oz
Psychological: $950/oz







The S&P Futures Battle with 1000


As anticipated, the S&P futures are having trouble with the highly psychological 1000 area. The futures are wavering around 1000 while continually finding support at our 2nd tier uptrend line. Today’s slight pullback comes despite better than expected weekly Unemployment Claims. The S&P’s relative inaction comes after the disappointing ISM Non-Manufacturing PMI and Non-Farm Employment Change data yesterday. Additionally, investors are reacting to the BOE’s decision to administer a monetary shock by injecting another $84 billion into its QE plan. The BOE’s injection caught investors off-guard, and the Pound is experiencing a rapid depreciation against the Dollar as a result. We believe the BOE is taking advantage of the rampant optimism surrounding the outperformance of British economic data. The BOE is playing it safe, depreciating the Pound in an effort to protect the export side of its services and manufacturing industries in case the global economy should cool in Q3.

The BOE’s cautionary action is denting the S&P’s upward momentum, injecting a bit of uncertainty along with the liquidity. However, we believe the BOE’s monetary shock will only be temporary, and may be soon forgotten should tomorrow’s economic data outperform. We’ll get more important data from the U.S., including the headline unemployment rate. Britain will also release its PPI number. Weak PPI data may not necessary be a bad thing since it could justify today’s liquidity measure. However, weaker than expected data could give investors a reason to send the S&P futures packing towards our 2nd tier uptrend line and August lows.

Meanwhile, investors should keep a close eye on the developments in the FX market. Though the GBP/USD is under considerable immediate-term downward pressure, it will be interesting to see how the EUR/USD and gold hold up along their respective 2nd tier downtrend lines (see addt’l commentary). If these downtrend lines don’t hold, the S&P futures could be in for a more sizable pullback. We also notice the 30 Year T-Bond futures are trying to form a new base, a negative immediate-term development considering their negative correlation with U.S. equities. Hence, investors should monitor immediate-term developments in the S&P’s correlations.


Price: 966.00
Resistances: 1001.50, 1006.25
Supports: 991.75, 986, 981.5, 978.25
Psychological: 1000








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Published on  Thu, Aug 6 2009, 16:34 GMT