EUR/USD
The EUR/USD has taken a turn for the worst in a hurry. The currency pair has returned almost all of its gains from the major rally in reaction to America’s quantitative easing. Germany’s Prelim CPI coming in lower than expected triggered Friday’s selloff. Furthermore, the ECB cautioned the economy may not be as stable as previously thought. Therefore, the use of quantitative easing and lower interest rates is back on the table. Hence, the EU could be wading in the same pool of massive liquidity as America, Britain and Japan. As a result, the positive correlation between the EUR/USD and U.S. equities is back in full swing. It seems investors acted prematurely in sending the EUR/USD to such high levels. Despite the pullback, the uptrend still has multiple defenses including our 1st tier uptrend line and the highly psychological 1.30 zone. If the currency pair should continue its descent, the 1.30 level could prove critical. The EUR/USD fought for months to break through this barrier, and falling back beneath would mean reentering the drudges of the February trading zone. Despite the sudden turn towards negativity, the EUR/USD is still in better shape than the Cable. The ECB’s benchmark rate remains at a relatively attractive level with quantitative easing untapped. However, if the U.S. economy should take another leg down, the downturn could force the ECB’s hand. The EU has a few scattered releases before Thursday’s key ECB meeting and decision concerning monetary policy. Fundamentally, we find supports of 1.3162, 1.3124, 1.3092, 1.3044 and 1.2996. To the topside, we see resistances of 1.3205, 1.3253, 1.3291, and 1.3334. The EUR/USD is currently exchanging at 1.3179.
GBP/USD
The Cable has been in a rapid decline since falling through our 2nd tier uptrend as investors rush towards the Dollar for safety. The GBP/USD is finding near-term stability on our medium-term downtrend line in an effort to avoid retesting the key 1.40 level. Investors panicked on Friday after Britain’s Current Account plummeted and Final GDP came in a basis point below analyst expectations. The Current Account numbers were the largest cause for concern. Not only did the Current Account come in near 1.8 Billion Pounds below expectations, but the announcement was coupled with a downward revision in last quarter’s release. Despite the negative reaction from investors, QI09’s release shows encouraging improvement from QIII08. However, the combination of disappointing data from Britain and discouraging news from the EU was enough to cool the optimism developed over the last week. In fact, both the Euro and Pound have surrendered nearly all of the post-U.S. quantitative easing gains. The Euro still holds the upper hand over the Pound as shown by the relative strength of the EUR/GBP. The BOE has already committed to a near-zero benchmark rate coupled with quantitative easing while the ECB has managed to resist the temptation of extreme liquidity. Therefore, the Cable should continue to experience comparatively large contractions during shifts to the downside. Britain will release its GfK Consumer Confidence number today. Analysts are looking for no change from February’s release. Fundamentally, we find resistance of 1.4208 with additional resistances hanging at 1.4240, 1.4283, and 1.4326. The 1.45 area will serve as a psychological barrier with 1.40 acting as a highly psychological cushion. To the downside, we see supports of 1.4159, 1.4100, 1.4045, and 1.3981. The GBP/USD is currently exchanging at 1.4194.
USD/JPY
The USD/JPY continues its hard-fought battle with February highs and our 3rd tier downtrend line, but the currency pair seems to be losing the battle. The rally is losing its momentum and may have one last shot at breaking through and retesting 100. The fact investors lack conviction and commitment to a depreciating Yen reflects uncertainty concerning the state of the Japanese economy. Japan’s Prelim Industrial Production data came in below analyst expectations with the highly-anticipated Tankan Manufacturing Index coming late Tuesday EST. With the Carry Trade unraveled, investors are pricing the USD/JPY based on comparative economic fundamentals. Considering both Japan and America are faring poorly to say the least, the USD/JPY is mired in an extensive consolidation period. Regardless, the downtrend is sitting in the driver’s seat for now. If the USD/JPY fails to make a commitment to the upside soon, then we could see the currency pair giving way to its tendency to move lower. Japan will release some more economic data before the Tankan Survey, including Household Spending and Average Cash Earnings. However, the Tankan could be a pivot point for the USD/JPY. Should the data come in much worse than expected, we could witness a sharp movement to the downside. Fundamentally, we maintain see resistances of 97.66, 98.16, 99.06, and 99.79. To the downside, we find supports of 96.65, 95.98, 95.53, 94.97, and 94.24. The USD/JPY is currently exchanging at 96.87.
Crude Oil
Crude futures are tanking, collapsing below our downtrend lines and our 2nd tier uptrend line. In fact, the futures are headed back towards the highly psychological $50/bbl level as the S&P futures plunge below 800. The governmental rejection of GM and Chrysler is having a clear, profound effect on the price of Crude. The swift downward movement is understandable since the possible bankruptcy of America’s major auto manufacturers attacks the demand side of the equation on several fronts. First, the bankruptcy of GM and Chrysler would imply a systemic shock to unemployment, reducing demand and the consequential consumption of crude. Secondly, higher unemployment and tight credit means less new cars on the road, cutting another chunk out of demand. Finally, the collapse of the auto makers could send U.S. equities into a tailspin, damaging global economies and impacting international demand of crude. Least we mention Crude Oil Inventories have come in above expectations for four straight weeks. Regardless of the sudden turn towards negativity, investors will likely put up a fight around $50/bb considering its significance. However, if $50/bbl doesn’t hold then we could witness a drastic decline in crude futures. Fundamentally, we find resistances of $50.41/bbl, $50.79/bbl, $51.29/bbl, and $51.78/bbl. To the downside, we see supports of $49.81/bbl, $49.49/bbl, $49.01/bbl, and $48.51/bbl. The crude futures are presently trading at $52.36/bbl.
Gold
Gold is contracting sharply after Friday’s consolidation. The precious metal is exhibiting a negative correlation with the Dollar. The positive correlation with U.S. equities is a bit odd and raises a red flag. These types of correlations remind us of late 2008 when commodities and equities joined together in large declines across the board, signaling deflation. Therefore, such movements show investor confidence is withering and bulls should be wary. Gold’s fundamental defenses are wearing thin, and all the precious metal has left is our 1st tier uptrend line and the highly psychological $900/oz level. These two cushions should put up quite a fight, and a movement below will not come easily. However, if these fundamentals fail to hold, then we could witness a massive movement to the downside with a clear commitment to a downtrend. The outlook for Gold will likely rely on the resilience of U.S. equities and their ability to pull themselves together after the crippling psychological blows from this weekend. Fasten your seatbelts, because we’ll be in for a wild ride this week. Fundamentally we see resistances of $915.16/oz, $916.98/oz, $919.32/oz, and $922.45/oz. To the downside, find supports of $911.78/oz, $908.66/oz, $906.32/oz, $903.71/oz and $901.37/oz. Gold is currently trading at $913.70/oz.
S&P
The S&P futures have crashed below our 3rd tier downtrend line and are presently trading beneath the highly psychological 800 level. The S&P futures are flirting with dangerous territory in reaction to the government’s rejection of the automakers’ restricting proposals. The viability of GM and Chrysler are thrown into doubt and the possibility of bankruptcy is all the more likely. Furthermore, if GM and Chrysler are allowed to fail, then the market may force Ford to follow suit in what could be an industrial collapse. The inevitable can’t be delayed too much longer. The repercussions of a collapse in the U.S. auto industry are unknown, but should be far-reaching. To make matters worse, Treasury Secretary Geithner delivered the second of a one-two punch by stating that the major banks may require a lot more assistance to stay afloat. Analysts are spreading the word that BofA and Citigroup performed poorly in March compared to the first two months of 2009. Surprise! As we pointed out in our previous posts, a quarter consists of four months, not two. Therefore, it seems the CEOs were playing mind games after all, hoping they could fight the tide by giving investors the impression that all was well. The downfall of psychologically-led rallies is that investors have to deal with reality at the end of the day. Therefore, it seems a reality check is coming as deadlines and earnings approach. It’s no surprise the S&P futures are putting up a fight around 800 considering its psychological significance. However, the fact that the futures are opting for the underbelly of 800 indicates we could be in for a huge sell-off today. The grass certainly isn’t greener on the other side. Worries about the performance of the EU and British economies have kicked back in first gear. The concerns are reflected in the rapid selloff in the EUR/USD and GBP/USD. Moving to the Pacific Rim, Japan’s Industrial Production managed to come in below reduced expectations, indicating global consumption continues to wane. Correlation wise, Crude is flirting with $50/bbl and Gold is heading south in a hurry. The coordinated collapse across investment products brings back bad memories of the heat of the economic crisis. If equities and commodities don’t find relief in their psychological supports, then we could witness a massive leg down in equities. Fundamentally, we find supports of 794.5, 790.25, 782.5, 775, and 769.5. To the topside, we see resistances of 801.75, 811.75, 818.75, and 827.5. The S&P futures are currently trading at 796.00.
30 Year
The upward momentum in the 30-Year is regaining traction as U.S. equities plummet in reaction to the bad news concerning the auto makers and banks. Investors are running to the Dollar and U.S. debt for safety as the outlooks for the EU and Britain darken. Furthermore, China is losing a little bit of its swagger since a deteriorating global economy will undoubtedly have a negative impact on its economy. Additionally, we can’t forget the Federal Reserve is officially participating in quantitative easing, meaning the U.S. government will protect the interest payments of U.S. debt at all costs. Hence, the 30 Year futures are strengthening in the hope that the excess supply of U.S. Treasuries used to fund the nation’s economic initiatives will be taken care of one way or another. Therefore, we expect the 30 Year futures to exhibit a normal, negative correlation with U.S. equities unless the Treasuries receive a negative demand shock or the auctions turn sour. The futures are comfortably above our medium-term downtrend and we anticipate large near-term gains if they should climb back above our 130.56 resistance. Fundamentally, we find resistances of 130.05, 130.56, 130.97, and 131.55. To the downside, we see supports of 129.41, 128.98, 128.52, and 128.06. The 30 Year T-Bond futures are currently trading at 129.22.
The EUR/USD has taken a turn for the worst in a hurry. The currency pair has returned almost all of its gains from the major rally in reaction to America’s quantitative easing. Germany’s Prelim CPI coming in lower than expected triggered Friday’s selloff. Furthermore, the ECB cautioned the economy may not be as stable as previously thought. Therefore, the use of quantitative easing and lower interest rates is back on the table. Hence, the EU could be wading in the same pool of massive liquidity as America, Britain and Japan. As a result, the positive correlation between the EUR/USD and U.S. equities is back in full swing. It seems investors acted prematurely in sending the EUR/USD to such high levels. Despite the pullback, the uptrend still has multiple defenses including our 1st tier uptrend line and the highly psychological 1.30 zone. If the currency pair should continue its descent, the 1.30 level could prove critical. The EUR/USD fought for months to break through this barrier, and falling back beneath would mean reentering the drudges of the February trading zone. Despite the sudden turn towards negativity, the EUR/USD is still in better shape than the Cable. The ECB’s benchmark rate remains at a relatively attractive level with quantitative easing untapped. However, if the U.S. economy should take another leg down, the downturn could force the ECB’s hand. The EU has a few scattered releases before Thursday’s key ECB meeting and decision concerning monetary policy. Fundamentally, we find supports of 1.3162, 1.3124, 1.3092, 1.3044 and 1.2996. To the topside, we see resistances of 1.3205, 1.3253, 1.3291, and 1.3334. The EUR/USD is currently exchanging at 1.3179.
GBP/USD
The Cable has been in a rapid decline since falling through our 2nd tier uptrend as investors rush towards the Dollar for safety. The GBP/USD is finding near-term stability on our medium-term downtrend line in an effort to avoid retesting the key 1.40 level. Investors panicked on Friday after Britain’s Current Account plummeted and Final GDP came in a basis point below analyst expectations. The Current Account numbers were the largest cause for concern. Not only did the Current Account come in near 1.8 Billion Pounds below expectations, but the announcement was coupled with a downward revision in last quarter’s release. Despite the negative reaction from investors, QI09’s release shows encouraging improvement from QIII08. However, the combination of disappointing data from Britain and discouraging news from the EU was enough to cool the optimism developed over the last week. In fact, both the Euro and Pound have surrendered nearly all of the post-U.S. quantitative easing gains. The Euro still holds the upper hand over the Pound as shown by the relative strength of the EUR/GBP. The BOE has already committed to a near-zero benchmark rate coupled with quantitative easing while the ECB has managed to resist the temptation of extreme liquidity. Therefore, the Cable should continue to experience comparatively large contractions during shifts to the downside. Britain will release its GfK Consumer Confidence number today. Analysts are looking for no change from February’s release. Fundamentally, we find resistance of 1.4208 with additional resistances hanging at 1.4240, 1.4283, and 1.4326. The 1.45 area will serve as a psychological barrier with 1.40 acting as a highly psychological cushion. To the downside, we see supports of 1.4159, 1.4100, 1.4045, and 1.3981. The GBP/USD is currently exchanging at 1.4194.
USD/JPY
The USD/JPY continues its hard-fought battle with February highs and our 3rd tier downtrend line, but the currency pair seems to be losing the battle. The rally is losing its momentum and may have one last shot at breaking through and retesting 100. The fact investors lack conviction and commitment to a depreciating Yen reflects uncertainty concerning the state of the Japanese economy. Japan’s Prelim Industrial Production data came in below analyst expectations with the highly-anticipated Tankan Manufacturing Index coming late Tuesday EST. With the Carry Trade unraveled, investors are pricing the USD/JPY based on comparative economic fundamentals. Considering both Japan and America are faring poorly to say the least, the USD/JPY is mired in an extensive consolidation period. Regardless, the downtrend is sitting in the driver’s seat for now. If the USD/JPY fails to make a commitment to the upside soon, then we could see the currency pair giving way to its tendency to move lower. Japan will release some more economic data before the Tankan Survey, including Household Spending and Average Cash Earnings. However, the Tankan could be a pivot point for the USD/JPY. Should the data come in much worse than expected, we could witness a sharp movement to the downside. Fundamentally, we maintain see resistances of 97.66, 98.16, 99.06, and 99.79. To the downside, we find supports of 96.65, 95.98, 95.53, 94.97, and 94.24. The USD/JPY is currently exchanging at 96.87.
Crude Oil
Crude futures are tanking, collapsing below our downtrend lines and our 2nd tier uptrend line. In fact, the futures are headed back towards the highly psychological $50/bbl level as the S&P futures plunge below 800. The governmental rejection of GM and Chrysler is having a clear, profound effect on the price of Crude. The swift downward movement is understandable since the possible bankruptcy of America’s major auto manufacturers attacks the demand side of the equation on several fronts. First, the bankruptcy of GM and Chrysler would imply a systemic shock to unemployment, reducing demand and the consequential consumption of crude. Secondly, higher unemployment and tight credit means less new cars on the road, cutting another chunk out of demand. Finally, the collapse of the auto makers could send U.S. equities into a tailspin, damaging global economies and impacting international demand of crude. Least we mention Crude Oil Inventories have come in above expectations for four straight weeks. Regardless of the sudden turn towards negativity, investors will likely put up a fight around $50/bb considering its significance. However, if $50/bbl doesn’t hold then we could witness a drastic decline in crude futures. Fundamentally, we find resistances of $50.41/bbl, $50.79/bbl, $51.29/bbl, and $51.78/bbl. To the downside, we see supports of $49.81/bbl, $49.49/bbl, $49.01/bbl, and $48.51/bbl. The crude futures are presently trading at $52.36/bbl.
Gold
Gold is contracting sharply after Friday’s consolidation. The precious metal is exhibiting a negative correlation with the Dollar. The positive correlation with U.S. equities is a bit odd and raises a red flag. These types of correlations remind us of late 2008 when commodities and equities joined together in large declines across the board, signaling deflation. Therefore, such movements show investor confidence is withering and bulls should be wary. Gold’s fundamental defenses are wearing thin, and all the precious metal has left is our 1st tier uptrend line and the highly psychological $900/oz level. These two cushions should put up quite a fight, and a movement below will not come easily. However, if these fundamentals fail to hold, then we could witness a massive movement to the downside with a clear commitment to a downtrend. The outlook for Gold will likely rely on the resilience of U.S. equities and their ability to pull themselves together after the crippling psychological blows from this weekend. Fasten your seatbelts, because we’ll be in for a wild ride this week. Fundamentally we see resistances of $915.16/oz, $916.98/oz, $919.32/oz, and $922.45/oz. To the downside, find supports of $911.78/oz, $908.66/oz, $906.32/oz, $903.71/oz and $901.37/oz. Gold is currently trading at $913.70/oz.
S&P
The S&P futures have crashed below our 3rd tier downtrend line and are presently trading beneath the highly psychological 800 level. The S&P futures are flirting with dangerous territory in reaction to the government’s rejection of the automakers’ restricting proposals. The viability of GM and Chrysler are thrown into doubt and the possibility of bankruptcy is all the more likely. Furthermore, if GM and Chrysler are allowed to fail, then the market may force Ford to follow suit in what could be an industrial collapse. The inevitable can’t be delayed too much longer. The repercussions of a collapse in the U.S. auto industry are unknown, but should be far-reaching. To make matters worse, Treasury Secretary Geithner delivered the second of a one-two punch by stating that the major banks may require a lot more assistance to stay afloat. Analysts are spreading the word that BofA and Citigroup performed poorly in March compared to the first two months of 2009. Surprise! As we pointed out in our previous posts, a quarter consists of four months, not two. Therefore, it seems the CEOs were playing mind games after all, hoping they could fight the tide by giving investors the impression that all was well. The downfall of psychologically-led rallies is that investors have to deal with reality at the end of the day. Therefore, it seems a reality check is coming as deadlines and earnings approach. It’s no surprise the S&P futures are putting up a fight around 800 considering its psychological significance. However, the fact that the futures are opting for the underbelly of 800 indicates we could be in for a huge sell-off today. The grass certainly isn’t greener on the other side. Worries about the performance of the EU and British economies have kicked back in first gear. The concerns are reflected in the rapid selloff in the EUR/USD and GBP/USD. Moving to the Pacific Rim, Japan’s Industrial Production managed to come in below reduced expectations, indicating global consumption continues to wane. Correlation wise, Crude is flirting with $50/bbl and Gold is heading south in a hurry. The coordinated collapse across investment products brings back bad memories of the heat of the economic crisis. If equities and commodities don’t find relief in their psychological supports, then we could witness a massive leg down in equities. Fundamentally, we find supports of 794.5, 790.25, 782.5, 775, and 769.5. To the topside, we see resistances of 801.75, 811.75, 818.75, and 827.5. The S&P futures are currently trading at 796.00.
30 Year
The upward momentum in the 30-Year is regaining traction as U.S. equities plummet in reaction to the bad news concerning the auto makers and banks. Investors are running to the Dollar and U.S. debt for safety as the outlooks for the EU and Britain darken. Furthermore, China is losing a little bit of its swagger since a deteriorating global economy will undoubtedly have a negative impact on its economy. Additionally, we can’t forget the Federal Reserve is officially participating in quantitative easing, meaning the U.S. government will protect the interest payments of U.S. debt at all costs. Hence, the 30 Year futures are strengthening in the hope that the excess supply of U.S. Treasuries used to fund the nation’s economic initiatives will be taken care of one way or another. Therefore, we expect the 30 Year futures to exhibit a normal, negative correlation with U.S. equities unless the Treasuries receive a negative demand shock or the auctions turn sour. The futures are comfortably above our medium-term downtrend and we anticipate large near-term gains if they should climb back above our 130.56 resistance. Fundamentally, we find resistances of 130.05, 130.56, 130.97, and 131.55. To the downside, we see supports of 129.41, 128.98, 128.52, and 128.06. The 30 Year T-Bond futures are currently trading at 129.22.
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