Daily Market Commentary
EUR/USD Buckles Following Weak U.S. Employment Data
Today’s rally in the EUR/USD has hit a roadblock after America’s ADP Non-Farm Employment
Change number came in well below analyst expectations. Today’s release couples with yesterday’s disappointing CB Consumer Confidence release. Therefore, the U.S. continues to send negatively mixed signals, hampering the global economic outlook. In contrast to weak U.S. data, Germany’s Unemployment Change number came in below analyst expectations, reading negative for the third straight month. Hence, Germany’s employment market is firming up more quickly than America’s. However, last week’s wave of negative EU PMI data from Germany dampens our future outlook for German unemployment. Regardless of the future outlook, today’s positive employment data from Germany is helping weather negative U.S. data, limiting present selling pressure. Unfortunately for bulls, we’re not sure how lasting this strength will last.
ECB President Trichet voiced his preference for a stronger Dollar earlier this week. Trichet’s statement is juxtaposed to the ECB’s comparatively hawkish monetary stance throughout the year. Hence, it seems both the EU and Britain may now favor a stronger Dollar. We believe both central banks are realizing that if they don’t support the Dollar, a new monetary union will take shape with the East pulling power from the West. However, it remains to be seen whether Trichet’s public contemplation will result in concrete action. Trichet’s surprising support of the Dollar is undoubtedly creating a drag on the EUR/USD right now which could accelerate should U.S. equities experience a selloff.
Meanwhile, the EUR/USD still faces several downtrend lines with limited EU economic data on tap this week. Therefore, there seems to be little ammo to turn the tide and continued near-term weakness could be in order. The EUR/USD’s dip below our 1st tier uptrend line was a risky move since it runs through 9/8 levels. Although the currency pair climbed back above our 1st tier, a more definitive retracement could send the currency pair tumbling below the psychological 1.45 level. Hence, investors should keep a close eye on the EUR/USD’s interaction with our 1st tier uptrend line. Since EU econ data will be light, the EUR/USD’s near-term performance will likely rely on the S&P’s ability to stay above our 1st tier uptrend line (see S&P commentary) and the 1050 level. Continual strength in the S&P would likely help keep the EUR/USD’s head above water and 1.45. However, our outlook on the EUR/USD is becoming increasingly negative by the day. As for the topside, the EUR/USD faces multiple downtrend lines, 9/28 highs, and 9/17 highs. Our 3rd tier downtrend line is the key barometer for the EUR/USD’s uptrend since it runs through September 23rd highs.
Present Price: 1.4618
Resistances: 1.4634, 1.4656, 1.4677, 1.4703, 1.4724
Supports: 1.4608, 1.4580, 1.4563, 1.4541, 1.4519, 1.4501
Psychological: 1.45
GBP/USD Consolidates Around 1.60
The Cable recovered nicely from Monday lows, feeding off of a combination of oversold conditions, positively mixed British econ data, and reassuring comments from the BoE. Britain’s Current Account came in weak as we anticipated, fueled by consumption in light of a stronger Pound. Net Lending to Individuals made an encouraging improvement, showing banks are finally letting loose some of their pent up liquidity. The BoE helped the Pound’s rally by stating they have no present intention to lower the discount rate while they hope to keep the Pound’s broad-based depreciation within a reasonable level. King’s retraction concerning lowering the discount rate charged on reserves is probably attributed to the improvement in net lending. Hence, the BoE has managed to value the Pound via psychological forces over the past month without taking any concrete action. However, despite this week’s comments from the BoE, we believe the central still favors a weaker Pound in order to stimulate external demand for British services and manufactured goods.
Investors will get a better picture of the demand for British manufactured goods tomorrow upon the release of Manufacturing PMI data. We expect Manufacturing PMI data to come in weak, supporting the BoE’s dovish monetary actions. The more interesting data tomorrow will be Britain’s Halifax HPI data. We’ve recently seen signs of a cool down in Britain’s housing recovery. British housing data has been the one consistent bright spot amid Britain’s negatively mixed data over the past few months. Therefore, a pullback in housing could inflict further damage upon the Cable. Tomorrow’s British data will be coupled with important econ data from the U.S. as well, making for another volatile 24-48 hours.
Meanwhile, the Cable is trading back above June and July lows as well as the psychological 1.60 level. However, Monday’s crash below June lows was certainly a very negative technical sign. Therefore, we maintain our negative outlook trend-wise on the GBP/USD. As far as the bulls are concerned, it will be important for the Cable to consolidate and build a new base above our 1st tier uptrend line and the psychological 1.60 level. If the Cable can weather the downward momentum for the time being, the currency pair may be able to put together a near-term uptrend. Volume is picking up from the summer doldrums, yet we saw equally as strong sell-side action today as we saw on the buy-side yesterday, indicating the importance of present levels. The GBP/USD has quite a few barriers to overcome before piecing together a meaningful uptrend beginning with our multiple downtrend lines and intraday highs.
Present Price: 1.6024
Resistances: 1.6045, 1.6090, 1.6112, 1.6132, 1.6169
Supports: 1.6016, 1.5978, 1.5950, 1.5921, 1.5900
Psychological: 1.60
USD/JPY Heads Back Below 90
The USD/JPY is heading south again after failing to break our 2nd tier uptrend line. The psychological games continue at central banks across the globe, and the BoJ is no exception. The BoJ revised their previous hawkish statements by saying they would consider intervening if the Yen appreciated to unhealthy level. However, what exactly these levels are remains to be seen. We believe the BoJ’s most recent statement was made with the intention to appease manufacturers and exporters when the true intention is likely to have a stronger Yen over the long term. Strength in the USD/JPY from the BoJ’s comments didn’t last long. Today Bloomberg released an article stating ‘The Bank of Japan may decide as soon as next month to let its emergency corporate-debt buying programs expire…’ If this is true, the BoJ is clearly favoring a hawkish monetary policy. The USD/JPY is weakening below 90 once again in reaction to the news.
In addition to the flood of psychological monetary news, America’s CB Consumer Confidence number came in below analyst expectations yesterday. This weak CB number tags onto the disappointing durable goods data last Friday, indicating U.S. consumption continues to drag. The continual deterioration of U.S. consumption isn’t good news for a beleaguered Japanese manufacturing industry. In addition to the disappointing U.S. data, Japan’s Industrial Production and CPI numbers both came in a basis point below analyst expectations. The combination of declining prices and industrial production coupled with a more hawkish monetary stance from the BoJ is certainly a troublesome development for Japan’s economy. Therefore, all eyes will be on Japan’s TMI data Wednesday night PST. It’s hard to believe Japan’s TMI will come in positively considering the state of global consumption, but we will have to wait and see.
Technically speaking, we have little reason to be positive on the USD/JPY trend-wise. The currency pair continues to travel south from all of our note-worthy uptrend lines. The only technicals working in the USD/JPY’s favor right now are intraday and January 2009 lows. However, we did previously note that the 88.50-90 level should prove to be a reliable supportive trading range. Therefore, we wouldn’t be surprised to see the USD/JPY hang in this area over the next 24-48 hours. On the other hand, traders should remain on their toes since the FX markets are very dynamic right now. The question becomes whether U.S. equities and gold can keep upward momentum intact. As for the topside, the USD/JPY faces numerous downtrend lines along with the highly psychological 90 level. Therefore, the USD/JPY has quite a few large obstacles to overcome to the topside.
Present Price: 89.78
Resistances: 89.80, 90.03, 90.45, 90.73, 90.96, 91.32
Supports: 89.42, 89.15, 88.89, 88.60, 88.25, 87.97
Psychological: 90, 2009 and 2008 lows
Gold Consolidates Around $1000/oz
Gold continues its consolidation around the highly psychological $1000/oz level. A more protracted decline in gold was avoided this week after a sizable depreciation of the Dollar against both the Euro and the Pound over the last couple sessions. However, we maintain our negative trend outlooks on these major Dollar crosses for the time being, meaning a downward pressure in gold persists. We’re witnessing a battle of the bulls and the bears across the marketplace, highlighted by gold’s fluctuation around $1000/oz. While it seems the downtrend is gaining traction in major Dollar pairs, the bulls continue to keep the S&P’s head above water amid mixed global economic data and a pickup in M&A activity. The strength in U.S. equities is the counterbalance against a strengthening Dollar, holding gold above 9/10 lows and our multiple uptrend lines. However, a significant deterioration in U.S. equities would likely exacerbate the Dollar’s near-term broad-based appreciation and drop gold beneath key technicals. On the other hand, resilient U.S. equities could help turn the FX markets and allow gold to continue its march towards 2008 highs. We maintain our neutral outlook on gold trend-wise due since the precious metal is sitting at a crossroads. That being said, we believe there is ultimately a negative inclination in the gold since the technicals in the major Dollar crosses have deteriorated greatly. Meanwhile, 9/29 and 9/10 lows should serve as reliable technical cushions for gold along with our multiple uptrend lines. As for the topside, gold faces formidable resistances in our multiple downtrend lines and the highly psychological $1000/oz level.
Present Price: $996.60/oz
Resistances: $997.20/oz, $999.16/oz, $1001.13/oz, $1003.62/oz, $1006.12/oz, $1009.15/oz
Supports: $995.06/oz, $995.06/oz, $992.92/oz, $990.96/oz, $988.82/oz, $987.03/oz, $985.07/oz
Psychological: $1000/oz
The S&P Futures Weaken Following Weak ADP Data
The S&P futures are presently trading off over -1% after weaker than expected ADP Non-Farm Employment Change data. Though this ADP number has been an erratic reading in the past, it sets a bleak stage for Friday’s headline Non-Farm Employment Change and Unemployment Rate releases. Furthermore, it contradicts the encouraging decline we’ve seen in weekly unemployment claims data. In addition to today’s discouraging ADP number, yesterday’s CB Consumer Confidence data confirmed a downtrodden state of U.S. consumption. Combined with Friday’s weak durable goods numbers, U.S. consumption has not recovered as quickly as analysts had hoped. Perhaps this is why the Chinese government announced it will keep the gates of liquidity open to small and medium sized businesses to help compensate for the lackluster export demand. Tonight’s TMI data from Japan should give us a rounded picture of U.S. consumption, and we aren’t expecting a positive outcome. China will also release its Manufacturing PMI data tonight EST. Though it appears China’s PMI release may come in line due to government stimulus measures, any negative surprise would place further downward pressure on U.S. equities.
Meanwhile, central bank governors have heightened the psychological rhetoric this week. It seems the BoE and ECB favor a stronger Dollar to keep the global monetary standard intact for the time being. The BoJ voices the importance of a stable Dollar, yet the central bank continues to favor a stronger Yen. Overall, the central banks are entering the beginning stages of preparing investors psychologically for ‘exit’ procedures. We believe forceful exit procedures won’t come into play for quite some time. However, central banks will continue to test investors psychologically to try and soften the blow. Today’s rhetoric from China is interesting and it seems the government may be coming to terms with the fact that there has been a destruction of global consumption, particularly in the U.S. The extension of credit shouldn’t return to pre-crisis levels in the foreseeable future, meaning China will continue to bolster its economy with liquidity while it attempts to ignite domestic consumption. Additionally, the recent pullback in the Shanghai Composite Index is disconcerting and makes us wonder whether it forewarns of a similar downturn in U.S. equities. Lastly, the IMF lowered its estimate for total toxic assets in the financial system by around 15%. While this may be viewed as a positive to investors, the IMF went on to explain that about ½ of the toxic assets are still on the books. Furthermore, commercial real estate could be the next bubble to pop, placing even more pressure on bank balance sheets. Hence, there clearly needs to be a fundamental change if U.S. markets are to avoid a double dip recession.
Reading the above, it’s difficult for us to be fundamentally positive concerning U.S. equities. However, the technicals of the S&P futures remain in fairly good shape despite another drop below our important 2nd tier uptrend line. Investors are hopeful that the 3rd quarter earnings season will be encouraging considering a weakened Greenback and global stimulus packages likely boosted demand for U.S. products. Furthermore, past cost-cutting measures at U.S. corporations should continue to pay dividends this quarter. However, due to the reliance of demand on global stimulus packages, we question the sustainability of the recovery over the medium-term. The large contraction of credit and increase in required reserves in Western developed nations should keep real consumption at a historically deflated level. Although China has counteracted by expanding credit, it’s doubtful this boost of liquidity can counteract the damage inflicted upon U.S. consumption. Hence, the question becomes how long the global stimulus packages will keep the economy afloat before reality sets in. While 3rd quarter earnings may be rosy, it’s just a matter of time before reality sets in, that is unless stimulus can sustain the global economy long enough for consumption to return to sustainable levels.
Technically speaking, the S&P futures are holding above our new 1st tier uptrend line while trading around the psychological 1050 level. As long as these technicals hold price action in U.S. equities should remain relatively stable. As for the topside, U.S. equities face previous 2009 highs and the psychological 1075 and 1100 levels.
Price: 1044.50
Resistances: 1048.75, 1055.75, 1061, 1064.75, 1069.25
Supports: 1040.75, 1036, 1030.5, 1026.5, 1022.5
Psychological: 1050, 1000, 1075
Crude Pops Despite Wave of Negative U.S. Data
Crude futures have popped above our 1st tier downtrend line despite a combination of higher than expected crude inventories and weaker than expected ADP and Chicago PMI releases. Crude’s strength in reaction to these data releases is counterintuitive, and leads us to be believe there may be unreleased news moving the futures. The only reasonable explanation we can find is that crude futures are strengthening off of present weakness in the Dollar and relative stability in U.S. equities. The disappointing ADP and Chicago PMI releases add onto yesterday’s weak CB Consumer Confidence number. Furthermore, investors shouldn’t forget Friday’s durable goods data left something to be desired. Therefore, crude’s supply and demand fundamentals are coming up red. However, crude futures continue to be buoyed by the resilience of U.S. equities and the anticipation that OPEC will intervene if crude futures deviate too far from its desired $68-$73/bbl range. In fact, crude is trading back above the $68/bbl mark along with our 1st tier uptrend line. The next technical barriers to the topside are our 2nd and 3rd tier downtrend lines along with the psychological $70/bbl. As for the downside, crude is supported by 9/24-9/30 lows along with our 1st tier uptrend line and the psychological $65/bbl level.
Price: $68.68/bbl
Resistances: $68.80/bbl, $69.06/bbl, $69.31/bbl, $69.84/bbl, $70.25/bbl, $70.73/bbl
Supports: $68.39/bbl, $68.04/bbl, $67.67/bbl, $67.03/bbl, $67.07/bbl
Psychological: $70//bbl, $65/bbl
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.
EUR/USD Buckles Following Weak U.S. Employment Data
Today’s rally in the EUR/USD has hit a roadblock after America’s ADP Non-Farm Employment
Change number came in well below analyst expectations. Today’s release couples with yesterday’s disappointing CB Consumer Confidence release. Therefore, the U.S. continues to send negatively mixed signals, hampering the global economic outlook. In contrast to weak U.S. data, Germany’s Unemployment Change number came in below analyst expectations, reading negative for the third straight month. Hence, Germany’s employment market is firming up more quickly than America’s. However, last week’s wave of negative EU PMI data from Germany dampens our future outlook for German unemployment. Regardless of the future outlook, today’s positive employment data from Germany is helping weather negative U.S. data, limiting present selling pressure. Unfortunately for bulls, we’re not sure how lasting this strength will last.
ECB President Trichet voiced his preference for a stronger Dollar earlier this week. Trichet’s statement is juxtaposed to the ECB’s comparatively hawkish monetary stance throughout the year. Hence, it seems both the EU and Britain may now favor a stronger Dollar. We believe both central banks are realizing that if they don’t support the Dollar, a new monetary union will take shape with the East pulling power from the West. However, it remains to be seen whether Trichet’s public contemplation will result in concrete action. Trichet’s surprising support of the Dollar is undoubtedly creating a drag on the EUR/USD right now which could accelerate should U.S. equities experience a selloff.
Meanwhile, the EUR/USD still faces several downtrend lines with limited EU economic data on tap this week. Therefore, there seems to be little ammo to turn the tide and continued near-term weakness could be in order. The EUR/USD’s dip below our 1st tier uptrend line was a risky move since it runs through 9/8 levels. Although the currency pair climbed back above our 1st tier, a more definitive retracement could send the currency pair tumbling below the psychological 1.45 level. Hence, investors should keep a close eye on the EUR/USD’s interaction with our 1st tier uptrend line. Since EU econ data will be light, the EUR/USD’s near-term performance will likely rely on the S&P’s ability to stay above our 1st tier uptrend line (see S&P commentary) and the 1050 level. Continual strength in the S&P would likely help keep the EUR/USD’s head above water and 1.45. However, our outlook on the EUR/USD is becoming increasingly negative by the day. As for the topside, the EUR/USD faces multiple downtrend lines, 9/28 highs, and 9/17 highs. Our 3rd tier downtrend line is the key barometer for the EUR/USD’s uptrend since it runs through September 23rd highs.
Present Price: 1.4618
Resistances: 1.4634, 1.4656, 1.4677, 1.4703, 1.4724
Supports: 1.4608, 1.4580, 1.4563, 1.4541, 1.4519, 1.4501
Psychological: 1.45
GBP/USD Consolidates Around 1.60
The Cable recovered nicely from Monday lows, feeding off of a combination of oversold conditions, positively mixed British econ data, and reassuring comments from the BoE. Britain’s Current Account came in weak as we anticipated, fueled by consumption in light of a stronger Pound. Net Lending to Individuals made an encouraging improvement, showing banks are finally letting loose some of their pent up liquidity. The BoE helped the Pound’s rally by stating they have no present intention to lower the discount rate while they hope to keep the Pound’s broad-based depreciation within a reasonable level. King’s retraction concerning lowering the discount rate charged on reserves is probably attributed to the improvement in net lending. Hence, the BoE has managed to value the Pound via psychological forces over the past month without taking any concrete action. However, despite this week’s comments from the BoE, we believe the central still favors a weaker Pound in order to stimulate external demand for British services and manufactured goods.
Investors will get a better picture of the demand for British manufactured goods tomorrow upon the release of Manufacturing PMI data. We expect Manufacturing PMI data to come in weak, supporting the BoE’s dovish monetary actions. The more interesting data tomorrow will be Britain’s Halifax HPI data. We’ve recently seen signs of a cool down in Britain’s housing recovery. British housing data has been the one consistent bright spot amid Britain’s negatively mixed data over the past few months. Therefore, a pullback in housing could inflict further damage upon the Cable. Tomorrow’s British data will be coupled with important econ data from the U.S. as well, making for another volatile 24-48 hours.
Meanwhile, the Cable is trading back above June and July lows as well as the psychological 1.60 level. However, Monday’s crash below June lows was certainly a very negative technical sign. Therefore, we maintain our negative outlook trend-wise on the GBP/USD. As far as the bulls are concerned, it will be important for the Cable to consolidate and build a new base above our 1st tier uptrend line and the psychological 1.60 level. If the Cable can weather the downward momentum for the time being, the currency pair may be able to put together a near-term uptrend. Volume is picking up from the summer doldrums, yet we saw equally as strong sell-side action today as we saw on the buy-side yesterday, indicating the importance of present levels. The GBP/USD has quite a few barriers to overcome before piecing together a meaningful uptrend beginning with our multiple downtrend lines and intraday highs.
Present Price: 1.6024
Resistances: 1.6045, 1.6090, 1.6112, 1.6132, 1.6169
Supports: 1.6016, 1.5978, 1.5950, 1.5921, 1.5900
Psychological: 1.60
USD/JPY Heads Back Below 90
The USD/JPY is heading south again after failing to break our 2nd tier uptrend line. The psychological games continue at central banks across the globe, and the BoJ is no exception. The BoJ revised their previous hawkish statements by saying they would consider intervening if the Yen appreciated to unhealthy level. However, what exactly these levels are remains to be seen. We believe the BoJ’s most recent statement was made with the intention to appease manufacturers and exporters when the true intention is likely to have a stronger Yen over the long term. Strength in the USD/JPY from the BoJ’s comments didn’t last long. Today Bloomberg released an article stating ‘The Bank of Japan may decide as soon as next month to let its emergency corporate-debt buying programs expire…’ If this is true, the BoJ is clearly favoring a hawkish monetary policy. The USD/JPY is weakening below 90 once again in reaction to the news.
In addition to the flood of psychological monetary news, America’s CB Consumer Confidence number came in below analyst expectations yesterday. This weak CB number tags onto the disappointing durable goods data last Friday, indicating U.S. consumption continues to drag. The continual deterioration of U.S. consumption isn’t good news for a beleaguered Japanese manufacturing industry. In addition to the disappointing U.S. data, Japan’s Industrial Production and CPI numbers both came in a basis point below analyst expectations. The combination of declining prices and industrial production coupled with a more hawkish monetary stance from the BoJ is certainly a troublesome development for Japan’s economy. Therefore, all eyes will be on Japan’s TMI data Wednesday night PST. It’s hard to believe Japan’s TMI will come in positively considering the state of global consumption, but we will have to wait and see.
Technically speaking, we have little reason to be positive on the USD/JPY trend-wise. The currency pair continues to travel south from all of our note-worthy uptrend lines. The only technicals working in the USD/JPY’s favor right now are intraday and January 2009 lows. However, we did previously note that the 88.50-90 level should prove to be a reliable supportive trading range. Therefore, we wouldn’t be surprised to see the USD/JPY hang in this area over the next 24-48 hours. On the other hand, traders should remain on their toes since the FX markets are very dynamic right now. The question becomes whether U.S. equities and gold can keep upward momentum intact. As for the topside, the USD/JPY faces numerous downtrend lines along with the highly psychological 90 level. Therefore, the USD/JPY has quite a few large obstacles to overcome to the topside.
Present Price: 89.78
Resistances: 89.80, 90.03, 90.45, 90.73, 90.96, 91.32
Supports: 89.42, 89.15, 88.89, 88.60, 88.25, 87.97
Psychological: 90, 2009 and 2008 lows
Gold Consolidates Around $1000/oz
Gold continues its consolidation around the highly psychological $1000/oz level. A more protracted decline in gold was avoided this week after a sizable depreciation of the Dollar against both the Euro and the Pound over the last couple sessions. However, we maintain our negative trend outlooks on these major Dollar crosses for the time being, meaning a downward pressure in gold persists. We’re witnessing a battle of the bulls and the bears across the marketplace, highlighted by gold’s fluctuation around $1000/oz. While it seems the downtrend is gaining traction in major Dollar pairs, the bulls continue to keep the S&P’s head above water amid mixed global economic data and a pickup in M&A activity. The strength in U.S. equities is the counterbalance against a strengthening Dollar, holding gold above 9/10 lows and our multiple uptrend lines. However, a significant deterioration in U.S. equities would likely exacerbate the Dollar’s near-term broad-based appreciation and drop gold beneath key technicals. On the other hand, resilient U.S. equities could help turn the FX markets and allow gold to continue its march towards 2008 highs. We maintain our neutral outlook on gold trend-wise due since the precious metal is sitting at a crossroads. That being said, we believe there is ultimately a negative inclination in the gold since the technicals in the major Dollar crosses have deteriorated greatly. Meanwhile, 9/29 and 9/10 lows should serve as reliable technical cushions for gold along with our multiple uptrend lines. As for the topside, gold faces formidable resistances in our multiple downtrend lines and the highly psychological $1000/oz level.
Present Price: $996.60/oz
Resistances: $997.20/oz, $999.16/oz, $1001.13/oz, $1003.62/oz, $1006.12/oz, $1009.15/oz
Supports: $995.06/oz, $995.06/oz, $992.92/oz, $990.96/oz, $988.82/oz, $987.03/oz, $985.07/oz
Psychological: $1000/oz
The S&P Futures Weaken Following Weak ADP Data
The S&P futures are presently trading off over -1% after weaker than expected ADP Non-Farm Employment Change data. Though this ADP number has been an erratic reading in the past, it sets a bleak stage for Friday’s headline Non-Farm Employment Change and Unemployment Rate releases. Furthermore, it contradicts the encouraging decline we’ve seen in weekly unemployment claims data. In addition to today’s discouraging ADP number, yesterday’s CB Consumer Confidence data confirmed a downtrodden state of U.S. consumption. Combined with Friday’s weak durable goods numbers, U.S. consumption has not recovered as quickly as analysts had hoped. Perhaps this is why the Chinese government announced it will keep the gates of liquidity open to small and medium sized businesses to help compensate for the lackluster export demand. Tonight’s TMI data from Japan should give us a rounded picture of U.S. consumption, and we aren’t expecting a positive outcome. China will also release its Manufacturing PMI data tonight EST. Though it appears China’s PMI release may come in line due to government stimulus measures, any negative surprise would place further downward pressure on U.S. equities.
Meanwhile, central bank governors have heightened the psychological rhetoric this week. It seems the BoE and ECB favor a stronger Dollar to keep the global monetary standard intact for the time being. The BoJ voices the importance of a stable Dollar, yet the central bank continues to favor a stronger Yen. Overall, the central banks are entering the beginning stages of preparing investors psychologically for ‘exit’ procedures. We believe forceful exit procedures won’t come into play for quite some time. However, central banks will continue to test investors psychologically to try and soften the blow. Today’s rhetoric from China is interesting and it seems the government may be coming to terms with the fact that there has been a destruction of global consumption, particularly in the U.S. The extension of credit shouldn’t return to pre-crisis levels in the foreseeable future, meaning China will continue to bolster its economy with liquidity while it attempts to ignite domestic consumption. Additionally, the recent pullback in the Shanghai Composite Index is disconcerting and makes us wonder whether it forewarns of a similar downturn in U.S. equities. Lastly, the IMF lowered its estimate for total toxic assets in the financial system by around 15%. While this may be viewed as a positive to investors, the IMF went on to explain that about ½ of the toxic assets are still on the books. Furthermore, commercial real estate could be the next bubble to pop, placing even more pressure on bank balance sheets. Hence, there clearly needs to be a fundamental change if U.S. markets are to avoid a double dip recession.
Reading the above, it’s difficult for us to be fundamentally positive concerning U.S. equities. However, the technicals of the S&P futures remain in fairly good shape despite another drop below our important 2nd tier uptrend line. Investors are hopeful that the 3rd quarter earnings season will be encouraging considering a weakened Greenback and global stimulus packages likely boosted demand for U.S. products. Furthermore, past cost-cutting measures at U.S. corporations should continue to pay dividends this quarter. However, due to the reliance of demand on global stimulus packages, we question the sustainability of the recovery over the medium-term. The large contraction of credit and increase in required reserves in Western developed nations should keep real consumption at a historically deflated level. Although China has counteracted by expanding credit, it’s doubtful this boost of liquidity can counteract the damage inflicted upon U.S. consumption. Hence, the question becomes how long the global stimulus packages will keep the economy afloat before reality sets in. While 3rd quarter earnings may be rosy, it’s just a matter of time before reality sets in, that is unless stimulus can sustain the global economy long enough for consumption to return to sustainable levels.
Technically speaking, the S&P futures are holding above our new 1st tier uptrend line while trading around the psychological 1050 level. As long as these technicals hold price action in U.S. equities should remain relatively stable. As for the topside, U.S. equities face previous 2009 highs and the psychological 1075 and 1100 levels.
Price: 1044.50
Resistances: 1048.75, 1055.75, 1061, 1064.75, 1069.25
Supports: 1040.75, 1036, 1030.5, 1026.5, 1022.5
Psychological: 1050, 1000, 1075
Crude Pops Despite Wave of Negative U.S. Data
Crude futures have popped above our 1st tier downtrend line despite a combination of higher than expected crude inventories and weaker than expected ADP and Chicago PMI releases. Crude’s strength in reaction to these data releases is counterintuitive, and leads us to be believe there may be unreleased news moving the futures. The only reasonable explanation we can find is that crude futures are strengthening off of present weakness in the Dollar and relative stability in U.S. equities. The disappointing ADP and Chicago PMI releases add onto yesterday’s weak CB Consumer Confidence number. Furthermore, investors shouldn’t forget Friday’s durable goods data left something to be desired. Therefore, crude’s supply and demand fundamentals are coming up red. However, crude futures continue to be buoyed by the resilience of U.S. equities and the anticipation that OPEC will intervene if crude futures deviate too far from its desired $68-$73/bbl range. In fact, crude is trading back above the $68/bbl mark along with our 1st tier uptrend line. The next technical barriers to the topside are our 2nd and 3rd tier downtrend lines along with the psychological $70/bbl. As for the downside, crude is supported by 9/24-9/30 lows along with our 1st tier uptrend line and the psychological $65/bbl level.
Price: $68.68/bbl
Resistances: $68.80/bbl, $69.06/bbl, $69.31/bbl, $69.84/bbl, $70.25/bbl, $70.73/bbl
Supports: $68.39/bbl, $68.04/bbl, $67.67/bbl, $67.03/bbl, $67.07/bbl
Psychological: $70//bbl, $65/bbl
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.
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