Daily Market Commentary
EUR/USD Declines Towards 1.45 with Slide in Equities
The EUR/USD has followed U.S. equities lower, dropping through our 4th tier uptrend line before tapping the psychological 1.45 level. Though the EUR/USD bounced off of our 1st tier downtrend line, the currency pair continues to drift lower as strong bearish forces take control of the market as a whole. We point out key technical declines in the S&P futures and the GBP/USD while the USD/JPY continues to drag towards January lows. Additionally, the 30 Year T-Bonds broke out through September highs while gold and crude tipped lower. Therefore, the markets are beginning to act in unison and are re-establishing correlations we’ve experienced since last year. EU econ data has been light this week, giving the currency pair more of an incentive to follow its positive correlation with the S&P futures rather closely. What little data we did receive from the EU provided little to cheer about. German Retail Sales came in 150 basis points below expectations and the EU unemployment rate printed in line with analyst expectations at 9.6%. However, fortunately for the Euro, the comparative lack of econ data has allowed the currency to recover its relative strength. The Euro is firming up against the Pound, and the EUR/GBP appears poised to take a stab at September highs. Additionally, the EUR/USD has the strongest technical backbone as compared to the GBP/USD and USD/JPY. Hence, even if the pullback in the S&P futures exacerbates and we witness a continual broad-based appreciation of the Greenback, the EUR/USD has more reliable set of near-term defenses to help break its fall.
That being said, the EUR/USD has multiple uptrend lines along with the psychological 1.45 level serving as technical cushions. However, a failure of our 1st tier uptrend line would likely yield a much more protracted downturn. Fortunately for bulls, our 1st tier is quite a ways away, yet investors should still keep the level in mind. For the time being, a second drop through our 4th tier uptrend line increases the probability of a sub-1.45 movement towards our bottom-end supports and 2nd tier uptrend line. Meanwhile, the EUR/USD should continue to follow its positive correlation with U.S. equities since the EU doesn’t have a noteworthy data release until Monday’s retail sales data. Even then, the Euro is looking at another dry week data-wise. Hence, correlations should be closely watched. The wild card in the deck is the ECB’s monetary policy decision on Thursday. President Trichet made a semi-dovish statement for the first time in recent memory. Therefore, though the ECB may keep its present liquidity measures in line, investors will be looking for further evidence regarding the central bank’s attitude towards the Dollar. Further defense of a stronger greenback could place some psychological downward pressure on the EUR/USD.
Our outlook on the EUR/USD trend-wise is growing sour by the day. Our negativity stems from the blatantly negative performances of both the GBP/USD and USD/JPY. Additionally, the S&P futures finally gave way to the downside after persistent defense by the bulls. The most disconcerting aspect of the situations is the amount of room the Cable and USD/JPY have to the downside. Should their last lines of defense give way, near-term declines could really pick up. Such a development would likely drag the S&P futures and the EUR/USD with it. Therefore, investors should keep a close eye on the technical supports of the EUR/USD’s positive correlations. As for the topside, the EUR/USD will need some positive unemployment data from the U.S. today to turn the tide. The EUR/USD faces multiple downtrend lines along with Thursday highs.
Present Price: 1.4541
Resistances: 1.4563, 1.4584, 1.4608, 1.4630, 1.4656, 1.4677
Supports: 1.4541, 1.4519, 1.4501, 1.4479, 1.4462, 1.4437
Psychological: 1.45
GBP/USD Slides Towards September Lows
The GBP/USD is declining rapidly once again after 1.60 and our multiple uptrend lines failed to hold. Britain’s Manufacturing and Construction PMIs both came in weaker than expected, further confirming the pullback in global economic data. On a positive note, Britain’s Nationwide HPI came in a basis point stronger than expected. Though last week’s housing data hit a speed bump, British housing prices are holding up relatively well. However, the 0.9% growth is still a sizable decline compared to the previous release of 1.4%. The negative Manufacturing PMI appears to be the most disconcerting of the three, and is likely why BoE Governor King has approached monetary policy with a dovish stance. Therefore, we expect King to maintain his dovish behavior unless manufacturing and services data turns a corner for the better. Meanwhile, the Pound is dropping like a rock as we recognize sizable losses in the Cable and gains in the EUR/GBP.
The Cable has really put itself in a tough position by failing to stabilize above the psychological 1.60 level this last go-around. The currency pair is now staring at September and June 2009 lows. Furthermore, the GBP/USD’s ambivalence towards our 3rd tier uptrend line is discouraging for the medium-term. If September lows fail to hold we could see a retracement towards our 2nd tier uptrend rather quickly. The fact our 2nd tier uptrend line connects through March 2009 levels is a bit worrisome, since a failure of our 2nd tier could imply a medium-term downtrend towards the 1.40 level. To make matters worse, there’s quite a bit of room between our 1st tier uptrend line (off-grid) and our 2nd tier uptrend line. Therefore, losses could accelerate over the near-term if immediate technical cushions don’t hold up. As for the immediate-term, investors will look to September lows and our 2nd tier uptrend line for technical support. The Cable’s intraday performance will rely upon the outcome of U.S. unemployment data and the currency pair’s positive correlation with U.S. equities. Negative data results and a movement in the S&P futures towards 1000 would likely encourage the Cable to test the boundaries of its technical cushions.
Britain will get back on the data train first thing Monday morning by releasing its Halifax HPI and Services PMI. The Services PMI release will be very important to the Cable’s near-term performance since services account for a large majority of Britain’s GDP. A negative Services PMI number would only create another drag on the Pound. Meanwhile, we maintain our negative outlook on the GBP/USD trend-wise due to the aforementioned reasons.
Present Price: 1.5844
Resistances: 1.5900, 1.5921, 1.5950, 1.5978, 1.6016, 1.6045
Supports: 1.5833, 1.5807, 1.5776, 1.5750, 1.5718, 1.5671
Psychological: 1.60, 1.55
USD/JPY Drifts Lower as Global Equities Tumble
The USD/JPY has failed to garner any noteworthy upward momentum following the bottom set September 28th. The currency is drifting lower after neglecting to build upon its advance past the highly psychological 90 level. The slightly worse than expected TMI release late Wednesday night EST has been countered by much better than expected Retail Sales and Household Spending figures. Therefore, even though Japan’s manufacturing sector continues to face headwinds, the rapid appreciation of the Yen is triggering consumption among Japan’s populace. Unfortunately, this implies that there is a greater supply of Yen floating around and the development is not helpful for the uptrend’s cause. Then again, the uptrend has very few technical or psychological backing these days. The technicals for the USD/JPY remain in a discouraging state, to say the least. The only technical cushions keeping the USD/JPY afloat are September and January 2009 lows. If the pullback accelerates again and January lows don’t hold, we could see the USD/JPY testing 80 and all-time lows over the near to medium-term.
Meanwhile BoJ Minister Fujii has been running a bit of damage control to try and make up for his previous comments supporting a stronger Yen. However, Japan’s new monetary and fiscal policies still favor an appreciating Yen. This week we received speculative news stating the BoJ will consider ending its emergency corporate bond purchasing programs by the end of the year. Such a monetary move is hawkish in its nature, and would likely soak up a considerable amount of liquidity. On the other hand, all we have received from the BoJ and DPJ are elements of psychological contemplation. Therefore, the psychological impact of a hawkish monetary stance may have run its course until investors see definitive action.
We maintain our negative outlook on the USD/JPY trend-wise since we have little reason to be positive on the currency pair technically, fundamentally, and psychologically. Furthermore, the USD/JPY’s positive correlations aren’t faring too well themselves. The S&P futures have undergone a dramatic selloff while the 30 Year T-Bond futures pop to new highs. Additionally, the technicals of the GBP/USD and EUR/USD look fairly negative themselves, particularly the Cable’s. The Cable’s testing the limits of its own important lows separating the currency pair from more heightened near-term losses. Lastly, gold is currently testing the patience of the strong uptrend it has built over the last few months. Therefore, the USD/JPY’s positive correlations are emitting a similar negative tone. If the currency does happen to piece together a bottom, it faces multiple uptrend lines and the highly psychological 90 level.
Present Price: 89.36
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 Pares Losses Following Disappointing Employment Data
Gold is paring earlier losses, bouncing off of 9/29 lows and our 2nd tier uptrend line. Gold continues to hold strong above a key set of September lows despite the selloffs in the EUR/USD, GBP/USD, and USD/JPY. Furthermore, the S&P futures are finally experiencing the pullback analysts anticipated. The EUR/USD and GBP/USD are also trading above intraday lows, showing gold is tracking the Dollar more closely than equities as has been the norm throughout the economic downturn. Speaking of which, investors should recall that the EUR/USD has been the best correlation to track as far as gold is concerned. Coincidentally, we notice solid uptrend lines in both gold and the EUR/USD, whereas the Cable and USD/JPY have few near-term technical cushions. Therefore, gold should continue to be resilient should the market-wide pullback pick up momentum. However, there could come a breaking point in gold over time should its patience be tested. For the time being, gold has September 29th lows and our 1st and 2nd tier uptrend lines serving as technical cushions. Our 2nd tier uptrend line appears to carry more weight than our 1st tier. A failure of our 2nd tier could imply a rather quick pullback towards $975/oz. As for the topside, gold faces multiple downtrend lines, 9/30 highs, and of course the highly psychological $1000/oz level. While it’s wise to maintain a neutral outlook on gold trend-wise for the time being, the downtrend has a stronger case over the near-term considering the negative performance of the precious metals correlations.
Present Price: $995.45/oz
Resistances: $997.20/oz, $999.16/oz, $1001.13/oz, $1003.62/oz, $1006.12/oz, $1009.15/oz
Supports: $995.06/oz,$992.92/oz, $990.96/oz, $988.82/oz, $986.96/oz, $984.99/oz
Psychological: $1000/oz
The S&P Futures Fight to Stabilize Following Steep Sell-off
The S&P futures have rebounded from intraday lows nicely. It seems investors are biting on oversold conditions and aren’t quite ready to test the highly psychological 1000 level. Today’s wave of U.S. economic data was very negative. The Non-Farm Employment Change, Average Hourly Earnings, and Factory Orders releases all came in below analyst expectations. In fact, the NFEC number managed to come in 13k lighter (-263k) than Goldman’s revised expectations of -250k. Furthermore, yesterday’s ISM Manufacturing PMI and weekly Unemployment Claims releases both printed weak. The only bright spots were the jump in Pending Home Sales and Personal Spending. It’s interesting how Personal Spending came in so high considering the negative consumption data we’ve received lately, but we won’t dig much deeper for now. What can we pull from the past week and a half of data? Well…unemployment and consumption have taken a large step backwards while pending , not existing, home purchases are looking solid. Altogether, we believe this is a negative development for the U.S. economic recovery, and the S&P futures finally took notice yesterday by selling off heavily. Britain’s econ data didn’t fare much better this week with PMI data coming in below analyst expectations.
We previously warned a failure of our 2nd tier uptrend line may imply a rapid retest of 1000 and we’re almost there. Speaking of which, 1000 should prove to be a reliable support should it be tested, meaning the S&P’s near-term downward mobility may be limited by 2-3%. However, there won’t be any important economic releases from the U.S. next week, meaning investors should continue to trade on this week’s negative data until the BoE and ECB meet on Thursday. The only foreseeable market mover between now and then would be the G7 meeting this weekend and Britain’s Services PMI data on Monday. Therefore, the S&P futures should continue to trade with a downward bias. Due to the lack of data investors should keep a particularly close eye on the performance of the Dollar. Though the Dollar is weakening today, any large buying of the Greenback in reaction to central bank activity could place further downward pressure on the S&P futures. Investors should also monitor the 30 Year T-Bond futures. The 30 Year futures experienced a large breakout yesterday in accordance with their negative correlation with U.S. equities. Although the 30 Year futures have pulled back on large volume today, any further breakout could push U.S. equities lower.
Technically speaking, we can’t form any meaningful uptrend lines from July lows, meaning there remains a considerable downward pressure on U.S. equities. We are sticking to our previous prediction of a 1000 retest, though where equities head from there would depend on domestic and global economic fundamentals. As for the topside, a recovery above 8/28 lows would be an encouraging development for the S&P. However, the S&P futures must now deal with our new downtrend line and the psychological 1050 level.
Price: 1023
Resistances: 1027.75, 1031.25, 1034.25, 1039.75, 1044.5
Supports: 1017.75, 1014.5, 1009, 1006, 998.75
Psychological: 1000, 1050, 1075
Crude Recovers from Earlier Losses Hovers Around $70/bbl
Crude futures have recovered from intraday lows inflicted by worse than expected U.S. employment data. Rising unemployment and declining consumption should take its toll on demand for crude. Additionally weekly inventories registered a sizable surplus for the second week in a row. Despite the negative supply and demand fundamentals crude continues to prove resilient. In fact, yesterday crude showed a muted reaction to negative data compared to the large pullback in U.S. equities. Today crude is being buoyed by the positive performance of the EUR/USD in the face of another weak session in U.S. equities. Therefore, crude futures continue to carve their own path in the midst of volatile performances of both the Dollar and U.S. equities. The stability of crude is mysterious and we can only speculate as to the reasons behind recent resilience. Tension surrounding Iran’s nuclear program could be buoying the price of crude. However, Iran made concessions and appears to be playing ball, so this line of reasoning doesn’t carry much weight. Another possibility is that the regulation curbing trading of commodity futures could be lowering volatility. Lastly, investors may be reluctant to send crude out of its trading range due to the fear that OPEC will manipulate production to keep crude within its desired $68-$73/bbl trading range. We believe the last reason may be the more prominent driving force behind crude’s resilience, yet we are merely speculating.
Regardless of the reasoning, crude has climbed back above our 2nd tier uptrend line and is trading back around the psychological $70/bbl level. Crude futures registered large buy-side volume on Wednesday’s up-bar, indicating investors are standing behind crude’s recent step higher. However, the futures are still stuck beneath our 3rd tier downtrend line and multiple September highs, not to mention the psychological $75/bbl level. Therefore, gains should be limited to the topside as long as these technical barriers are in place. As for the downside, crude futures above our 1st and 2nd tier uptrend lines along with previous September lows and the psychological $65/bbl level. Due to the wedge taking place and the inconsistency of crude’s behavior with its correlations, we have a neutral outlook trend-wise on crude. Crude’s fate will ultimately rest on the S&P’s ability to bottom and the Dollar’s behavior over the near-term. Any wave of massive Dollar appreciation coupled with an exacerbated downturn in U.S. equities would likely drag crude futures lower, and vice versa. Since we are presently negative on the EUR/USD, GBP/USD, and S&P trend-wise, we are tempted to have a negative outlook on crude. However, we will stay in neutral as long as crude bounces around in its present wedge.
Price: $69.91/bbl
Resistances: $70.01/bbl, $70.36/bbl, $70.73/bbl, $71.13/bbl, $71.38/bbl, $71.78/bbl
Supports: $69.34/bbl, $68.97/bbl, $68.48/bbl, $68.08/bbl, $67.53/bbl
Psychological: $70//bbl, $65/bbl, $75/bbl
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EUR/USD Declines Towards 1.45 with Slide in Equities
The EUR/USD has followed U.S. equities lower, dropping through our 4th tier uptrend line before tapping the psychological 1.45 level. Though the EUR/USD bounced off of our 1st tier downtrend line, the currency pair continues to drift lower as strong bearish forces take control of the market as a whole. We point out key technical declines in the S&P futures and the GBP/USD while the USD/JPY continues to drag towards January lows. Additionally, the 30 Year T-Bonds broke out through September highs while gold and crude tipped lower. Therefore, the markets are beginning to act in unison and are re-establishing correlations we’ve experienced since last year. EU econ data has been light this week, giving the currency pair more of an incentive to follow its positive correlation with the S&P futures rather closely. What little data we did receive from the EU provided little to cheer about. German Retail Sales came in 150 basis points below expectations and the EU unemployment rate printed in line with analyst expectations at 9.6%. However, fortunately for the Euro, the comparative lack of econ data has allowed the currency to recover its relative strength. The Euro is firming up against the Pound, and the EUR/GBP appears poised to take a stab at September highs. Additionally, the EUR/USD has the strongest technical backbone as compared to the GBP/USD and USD/JPY. Hence, even if the pullback in the S&P futures exacerbates and we witness a continual broad-based appreciation of the Greenback, the EUR/USD has more reliable set of near-term defenses to help break its fall.
That being said, the EUR/USD has multiple uptrend lines along with the psychological 1.45 level serving as technical cushions. However, a failure of our 1st tier uptrend line would likely yield a much more protracted downturn. Fortunately for bulls, our 1st tier is quite a ways away, yet investors should still keep the level in mind. For the time being, a second drop through our 4th tier uptrend line increases the probability of a sub-1.45 movement towards our bottom-end supports and 2nd tier uptrend line. Meanwhile, the EUR/USD should continue to follow its positive correlation with U.S. equities since the EU doesn’t have a noteworthy data release until Monday’s retail sales data. Even then, the Euro is looking at another dry week data-wise. Hence, correlations should be closely watched. The wild card in the deck is the ECB’s monetary policy decision on Thursday. President Trichet made a semi-dovish statement for the first time in recent memory. Therefore, though the ECB may keep its present liquidity measures in line, investors will be looking for further evidence regarding the central bank’s attitude towards the Dollar. Further defense of a stronger greenback could place some psychological downward pressure on the EUR/USD.
Our outlook on the EUR/USD trend-wise is growing sour by the day. Our negativity stems from the blatantly negative performances of both the GBP/USD and USD/JPY. Additionally, the S&P futures finally gave way to the downside after persistent defense by the bulls. The most disconcerting aspect of the situations is the amount of room the Cable and USD/JPY have to the downside. Should their last lines of defense give way, near-term declines could really pick up. Such a development would likely drag the S&P futures and the EUR/USD with it. Therefore, investors should keep a close eye on the technical supports of the EUR/USD’s positive correlations. As for the topside, the EUR/USD will need some positive unemployment data from the U.S. today to turn the tide. The EUR/USD faces multiple downtrend lines along with Thursday highs.
Present Price: 1.4541
Resistances: 1.4563, 1.4584, 1.4608, 1.4630, 1.4656, 1.4677
Supports: 1.4541, 1.4519, 1.4501, 1.4479, 1.4462, 1.4437
Psychological: 1.45
GBP/USD Slides Towards September Lows
The GBP/USD is declining rapidly once again after 1.60 and our multiple uptrend lines failed to hold. Britain’s Manufacturing and Construction PMIs both came in weaker than expected, further confirming the pullback in global economic data. On a positive note, Britain’s Nationwide HPI came in a basis point stronger than expected. Though last week’s housing data hit a speed bump, British housing prices are holding up relatively well. However, the 0.9% growth is still a sizable decline compared to the previous release of 1.4%. The negative Manufacturing PMI appears to be the most disconcerting of the three, and is likely why BoE Governor King has approached monetary policy with a dovish stance. Therefore, we expect King to maintain his dovish behavior unless manufacturing and services data turns a corner for the better. Meanwhile, the Pound is dropping like a rock as we recognize sizable losses in the Cable and gains in the EUR/GBP.
The Cable has really put itself in a tough position by failing to stabilize above the psychological 1.60 level this last go-around. The currency pair is now staring at September and June 2009 lows. Furthermore, the GBP/USD’s ambivalence towards our 3rd tier uptrend line is discouraging for the medium-term. If September lows fail to hold we could see a retracement towards our 2nd tier uptrend rather quickly. The fact our 2nd tier uptrend line connects through March 2009 levels is a bit worrisome, since a failure of our 2nd tier could imply a medium-term downtrend towards the 1.40 level. To make matters worse, there’s quite a bit of room between our 1st tier uptrend line (off-grid) and our 2nd tier uptrend line. Therefore, losses could accelerate over the near-term if immediate technical cushions don’t hold up. As for the immediate-term, investors will look to September lows and our 2nd tier uptrend line for technical support. The Cable’s intraday performance will rely upon the outcome of U.S. unemployment data and the currency pair’s positive correlation with U.S. equities. Negative data results and a movement in the S&P futures towards 1000 would likely encourage the Cable to test the boundaries of its technical cushions.
Britain will get back on the data train first thing Monday morning by releasing its Halifax HPI and Services PMI. The Services PMI release will be very important to the Cable’s near-term performance since services account for a large majority of Britain’s GDP. A negative Services PMI number would only create another drag on the Pound. Meanwhile, we maintain our negative outlook on the GBP/USD trend-wise due to the aforementioned reasons.
Present Price: 1.5844
Resistances: 1.5900, 1.5921, 1.5950, 1.5978, 1.6016, 1.6045
Supports: 1.5833, 1.5807, 1.5776, 1.5750, 1.5718, 1.5671
Psychological: 1.60, 1.55
USD/JPY Drifts Lower as Global Equities Tumble
The USD/JPY has failed to garner any noteworthy upward momentum following the bottom set September 28th. The currency is drifting lower after neglecting to build upon its advance past the highly psychological 90 level. The slightly worse than expected TMI release late Wednesday night EST has been countered by much better than expected Retail Sales and Household Spending figures. Therefore, even though Japan’s manufacturing sector continues to face headwinds, the rapid appreciation of the Yen is triggering consumption among Japan’s populace. Unfortunately, this implies that there is a greater supply of Yen floating around and the development is not helpful for the uptrend’s cause. Then again, the uptrend has very few technical or psychological backing these days. The technicals for the USD/JPY remain in a discouraging state, to say the least. The only technical cushions keeping the USD/JPY afloat are September and January 2009 lows. If the pullback accelerates again and January lows don’t hold, we could see the USD/JPY testing 80 and all-time lows over the near to medium-term.
Meanwhile BoJ Minister Fujii has been running a bit of damage control to try and make up for his previous comments supporting a stronger Yen. However, Japan’s new monetary and fiscal policies still favor an appreciating Yen. This week we received speculative news stating the BoJ will consider ending its emergency corporate bond purchasing programs by the end of the year. Such a monetary move is hawkish in its nature, and would likely soak up a considerable amount of liquidity. On the other hand, all we have received from the BoJ and DPJ are elements of psychological contemplation. Therefore, the psychological impact of a hawkish monetary stance may have run its course until investors see definitive action.
We maintain our negative outlook on the USD/JPY trend-wise since we have little reason to be positive on the currency pair technically, fundamentally, and psychologically. Furthermore, the USD/JPY’s positive correlations aren’t faring too well themselves. The S&P futures have undergone a dramatic selloff while the 30 Year T-Bond futures pop to new highs. Additionally, the technicals of the GBP/USD and EUR/USD look fairly negative themselves, particularly the Cable’s. The Cable’s testing the limits of its own important lows separating the currency pair from more heightened near-term losses. Lastly, gold is currently testing the patience of the strong uptrend it has built over the last few months. Therefore, the USD/JPY’s positive correlations are emitting a similar negative tone. If the currency does happen to piece together a bottom, it faces multiple uptrend lines and the highly psychological 90 level.
Present Price: 89.36
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 Pares Losses Following Disappointing Employment Data
Gold is paring earlier losses, bouncing off of 9/29 lows and our 2nd tier uptrend line. Gold continues to hold strong above a key set of September lows despite the selloffs in the EUR/USD, GBP/USD, and USD/JPY. Furthermore, the S&P futures are finally experiencing the pullback analysts anticipated. The EUR/USD and GBP/USD are also trading above intraday lows, showing gold is tracking the Dollar more closely than equities as has been the norm throughout the economic downturn. Speaking of which, investors should recall that the EUR/USD has been the best correlation to track as far as gold is concerned. Coincidentally, we notice solid uptrend lines in both gold and the EUR/USD, whereas the Cable and USD/JPY have few near-term technical cushions. Therefore, gold should continue to be resilient should the market-wide pullback pick up momentum. However, there could come a breaking point in gold over time should its patience be tested. For the time being, gold has September 29th lows and our 1st and 2nd tier uptrend lines serving as technical cushions. Our 2nd tier uptrend line appears to carry more weight than our 1st tier. A failure of our 2nd tier could imply a rather quick pullback towards $975/oz. As for the topside, gold faces multiple downtrend lines, 9/30 highs, and of course the highly psychological $1000/oz level. While it’s wise to maintain a neutral outlook on gold trend-wise for the time being, the downtrend has a stronger case over the near-term considering the negative performance of the precious metals correlations.
Present Price: $995.45/oz
Resistances: $997.20/oz, $999.16/oz, $1001.13/oz, $1003.62/oz, $1006.12/oz, $1009.15/oz
Supports: $995.06/oz,$992.92/oz, $990.96/oz, $988.82/oz, $986.96/oz, $984.99/oz
Psychological: $1000/oz
The S&P Futures Fight to Stabilize Following Steep Sell-off
The S&P futures have rebounded from intraday lows nicely. It seems investors are biting on oversold conditions and aren’t quite ready to test the highly psychological 1000 level. Today’s wave of U.S. economic data was very negative. The Non-Farm Employment Change, Average Hourly Earnings, and Factory Orders releases all came in below analyst expectations. In fact, the NFEC number managed to come in 13k lighter (-263k) than Goldman’s revised expectations of -250k. Furthermore, yesterday’s ISM Manufacturing PMI and weekly Unemployment Claims releases both printed weak. The only bright spots were the jump in Pending Home Sales and Personal Spending. It’s interesting how Personal Spending came in so high considering the negative consumption data we’ve received lately, but we won’t dig much deeper for now. What can we pull from the past week and a half of data? Well…unemployment and consumption have taken a large step backwards while pending , not existing, home purchases are looking solid. Altogether, we believe this is a negative development for the U.S. economic recovery, and the S&P futures finally took notice yesterday by selling off heavily. Britain’s econ data didn’t fare much better this week with PMI data coming in below analyst expectations.
We previously warned a failure of our 2nd tier uptrend line may imply a rapid retest of 1000 and we’re almost there. Speaking of which, 1000 should prove to be a reliable support should it be tested, meaning the S&P’s near-term downward mobility may be limited by 2-3%. However, there won’t be any important economic releases from the U.S. next week, meaning investors should continue to trade on this week’s negative data until the BoE and ECB meet on Thursday. The only foreseeable market mover between now and then would be the G7 meeting this weekend and Britain’s Services PMI data on Monday. Therefore, the S&P futures should continue to trade with a downward bias. Due to the lack of data investors should keep a particularly close eye on the performance of the Dollar. Though the Dollar is weakening today, any large buying of the Greenback in reaction to central bank activity could place further downward pressure on the S&P futures. Investors should also monitor the 30 Year T-Bond futures. The 30 Year futures experienced a large breakout yesterday in accordance with their negative correlation with U.S. equities. Although the 30 Year futures have pulled back on large volume today, any further breakout could push U.S. equities lower.
Technically speaking, we can’t form any meaningful uptrend lines from July lows, meaning there remains a considerable downward pressure on U.S. equities. We are sticking to our previous prediction of a 1000 retest, though where equities head from there would depend on domestic and global economic fundamentals. As for the topside, a recovery above 8/28 lows would be an encouraging development for the S&P. However, the S&P futures must now deal with our new downtrend line and the psychological 1050 level.
Price: 1023
Resistances: 1027.75, 1031.25, 1034.25, 1039.75, 1044.5
Supports: 1017.75, 1014.5, 1009, 1006, 998.75
Psychological: 1000, 1050, 1075
Crude Recovers from Earlier Losses Hovers Around $70/bbl
Crude futures have recovered from intraday lows inflicted by worse than expected U.S. employment data. Rising unemployment and declining consumption should take its toll on demand for crude. Additionally weekly inventories registered a sizable surplus for the second week in a row. Despite the negative supply and demand fundamentals crude continues to prove resilient. In fact, yesterday crude showed a muted reaction to negative data compared to the large pullback in U.S. equities. Today crude is being buoyed by the positive performance of the EUR/USD in the face of another weak session in U.S. equities. Therefore, crude futures continue to carve their own path in the midst of volatile performances of both the Dollar and U.S. equities. The stability of crude is mysterious and we can only speculate as to the reasons behind recent resilience. Tension surrounding Iran’s nuclear program could be buoying the price of crude. However, Iran made concessions and appears to be playing ball, so this line of reasoning doesn’t carry much weight. Another possibility is that the regulation curbing trading of commodity futures could be lowering volatility. Lastly, investors may be reluctant to send crude out of its trading range due to the fear that OPEC will manipulate production to keep crude within its desired $68-$73/bbl trading range. We believe the last reason may be the more prominent driving force behind crude’s resilience, yet we are merely speculating.
Regardless of the reasoning, crude has climbed back above our 2nd tier uptrend line and is trading back around the psychological $70/bbl level. Crude futures registered large buy-side volume on Wednesday’s up-bar, indicating investors are standing behind crude’s recent step higher. However, the futures are still stuck beneath our 3rd tier downtrend line and multiple September highs, not to mention the psychological $75/bbl level. Therefore, gains should be limited to the topside as long as these technical barriers are in place. As for the downside, crude futures above our 1st and 2nd tier uptrend lines along with previous September lows and the psychological $65/bbl level. Due to the wedge taking place and the inconsistency of crude’s behavior with its correlations, we have a neutral outlook trend-wise on crude. Crude’s fate will ultimately rest on the S&P’s ability to bottom and the Dollar’s behavior over the near-term. Any wave of massive Dollar appreciation coupled with an exacerbated downturn in U.S. equities would likely drag crude futures lower, and vice versa. Since we are presently negative on the EUR/USD, GBP/USD, and S&P trend-wise, we are tempted to have a negative outlook on crude. However, we will stay in neutral as long as crude bounces around in its present wedge.
Price: $69.91/bbl
Resistances: $70.01/bbl, $70.36/bbl, $70.73/bbl, $71.13/bbl, $71.38/bbl, $71.78/bbl
Supports: $69.34/bbl, $68.97/bbl, $68.48/bbl, $68.08/bbl, $67.53/bbl
Psychological: $70//bbl, $65/bbl, $75/bbl
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