Daily Market Commentary
EUR/USD Settles Ahead of ECB Meeting
The EUR/USD is settling around 1.28 following yesterday’s encouraging rally in the risk trade as investors await the ECB’s monetary policy decision. Analysts are expecting the ECB to stay dovish considering the headwinds blowing back from the U.S. Additionally, the ECB will likely need to keep monetary policy loose for the foreseeable future in order to counter the contractionary impacts from austerity measures. While expectations of such a dovish stance would normally weigh on a currency, the Euro is outperforming as investor uncertainty cools. Solid manufacturing PMIs from both the U.S. and China along with a positive wave of data from Australia have allowed the risk trade to stabilize and rally across the board. Meanwhile, the EUR/USD’s August lows appear to be firming as the currency pair targets medium –term uptrend lines which are presently hanging around the highly psychological 1.30 level. That being said, 1.30 would serve as the key test over the near-term if the current rally carries forward. Between today’s ECB and tomorrow’s headline U.S. employment data the EUR/USD will have plenty of data and news to serve as catalysts. Additionally, the U.S. will print pending home sales data today and investors are expecting a decline of -1.3%. If pending home sales manage to top expectations the EUR/USD may gain new topside momentum. However, investors should keep in mind that considerable downward pressure remains to the downside and we’re in the midst of a risk-on/risk-off market.
Technically speaking, the EUR/USD faces technical barriers in the form of intraday and 8/18 highs along with the highly psychological 1.30 level. As for the downside, the EUR/USD has supports in the form of intraday and 9/1 lows. Additionally, the psychological 1.25 level could serve as a solid cushion should it be tested.
Present Price: 1.2819
Resistances: 1.2833, 1.2852, 1.2868, 1.2882, 1.2899, 1.2914
Supports: 1.2802, 1.2786, 1.2765, 1.2747, 1.2726, 1.2695
Psychological: 1.25, 1.30
GBP/USD Underperforms in the Wake of Weak Data
The Cable is underperforming in the midst of a rally in the rest of the risk trade. The Pound is being punished in reaction to comparatively weak UK fundamentals. Weaker than expected manufacturing and construction PMI’s along with a discouraging decline in home prices has wiped away the optimism generated from last week’s positive UK GDP data. However, despite the recent wave of negative UK data the Cable is still holding above August lows as investor uncertainty subsides in the wake of better than expected manufacturing PMI data from both the U.S. and UK. The U.S. economy was in dire need of some good economic news and bulls got what they were waiting for yesterday, driving the S&P futures higher by nearly 3% after manufacturing PMI printed at 56.3 vs. 53.2 expected. However, despite the positive turn substantial downward pressure remains as uncertainty increases regarding the sustainability of the global economic recovery. Hence, we’ll have to wait and see whether the risk trade can post a confirmation rally by the end of the week as more heavily-weighted news and data flows in. Investors are presently looking ahead to the ECB’s monetary policy decision followed by U.S. pending home sales. Activity will peak on Friday with the U.S. printing headline employment data. Should the news and data continue to improve then the risk trade may be able to add onto fresh upward momentum and resurface from the summer doldrums on a positive note.
Technically speaking, the Cable has supports in the form of intraday and 8/31 lows. Additionally, the psychological 1.55 level could continue to have a noticeable influence over near-term movements in the Cable. As for the topside, the Cable faces technical barriers in the form of intraday and 9/1 highs.
Present Price: 1.5390
Resistances: 1.5398, 1.5419, 1.5449, 1.5472, 1.5503, 1.5530
Supports: 1.5374, 1.5342, 1.5322, 1.5298, 1.5274, 1.5252
Psychological: 1.55, August Lows
USD/JPY Fluctuates Above August Lows
The USD/JPY is fluctuating just above August lows as the currency pair flirts with the idea of taking yet another step lower. That being said, it will be very important for the USD/JPY to consolidate above August lows and establish a more lasting bottom. Otherwise, the currency pair may continue drifting into troubling historical level. The USD/JPY did receive some good news yesterday after America’s manufacturing PMI topped analyst estimates. The release resulted in a huge rally in U.S. equities and many risk assets participated. In fact, it is likely this encouraging PMI release which prevented the USD/JPY from deteriorating below August levels. However, the USD/JPY’s footing is still on weak ground, leaving potential stability up to news and data from the EU and U.S. Investors are presently awaiting the conclusion of the ECB’s monthly monetary policy meeting followed by U.S. pending home sales. The week will be highlighted by tomorrow’s headline U.S. employment data. That being said, the trading week could end on a rather volatile note. If U.S. employment data disappoints then August lows could give way since analysts and investors have not been impressed by the BOJ’s recent action, or lack thereof. Therefore, investors should keep a close eye on the broad-based reaction of the risk trade to the aforementioned events.
Technically speaking, the USD/JPY has supports in the form of intraday and 8/24 lows. As for the topside, the USD/JPY faces technical barriers in the form of intraday highs and the psychological 85 level.
Present Price: 84.36
Resistances: 84.15, 84.25, 84.39, 84.47, 84.57, 84.68
Supports: 83.98, 83.89, 83.70, 83.57
Psychological: 85, August Lows
Gold Taps $1250/oz
Gold is testing its highly psychological $1250/oz mark while staring down previous 2010 highs as the precious metal continues its ascent higher despite yesterday’s rally in the risk trade. Gold did take a small step back yesterday as U.S. equities soared and investors found more interest in risk. However, intraday losses were negligible and the precious metal’s long-term uptrend is clearly intact with investor uncertainty still at a heightened level. That being said, gold could have enough topside momentum to leave behind $1250/oz over the near-term with key news and data on the way. The ECB will make its monthly monetary policy decision shortly followed by U.S. pending home sales. The U.S. will highlight the trading week with its highly anticipated headline employment data. The ECB will likely stay loose and reiterate a dovish monetary policy for the foreseeable future as the central bank combats headwinds from the U.S. and the potential negative economic impact from the implementation of various EU austerity measures. Loose monetary policy in developed nations tends to bode well for gold and should help boost the precious metal over the medium-term. However, since a loose ECB policy stance is expected more emphasis will likely be places on Friday’s employment data. Should U.S. companies lay off more workers than anticipated then investors would likely snap up more gold in risk-aversion. Either way, gold and the markets as a whole should be in for an active close to the week.
Technically speaking, gold has technical supports in the form of intraday and 9/1 lows. As for the topside, gold faces technical barriers in the form of intraday and 9/1 highs. Additionally, the psychological $1250/oz level could continues to serve as a solid technical barrier over the near-term.
Present Price: $1246.65/ oz
Resistances: $1248.34/oz, $1250.91/oz, $1252.71/oz, $1254.71/oz, $1255.70/oz, $1258.05/oz
Supports: $1246.71/oz, $1244.97/oz, $1241.60/oz, $1240.12/oz, $1238.62/oz, $1237.21/oz
Psychological: $1250/oz, 2010 Highs
AUD/USD Blows Past .90
The Aussie logged huge gains yesterday and blew right past its highly psychological .90 level after Australia’s GDP topped analyst forecasts by 3 basis points and the currency pair benefitted from a rally in the risk trade as a whole. Yesterday’s positive GDP release came after encouraging housing and consumption data, indicating Australia’s economy is on solid footing despite recent headwinds from the U.S. Additionally, China’s manufacturing PMI improved and it appears the slowdown in China may just be a step back and not a double dip. The tide of good fundamentals has reaffirmed confidence in the Aussie and is leading analysts to believe that the RBA will raise its benchmark rate once again before year’s end. Meanwhile, the Aussie is trading well above long-term uptrend lines while the currency pair eyes August highs. However, present strength in the Aussie could be capped by upcoming U.S. data. The U.S. will print pending home sales data today followed by headline unemployment figures tomorrow. Should these data points disappoint then the risk trade could head lower and cap near-term gains in the Aussie, leaving the currency pair to consolidate around .90. On the other hand, if the U.S. happens to receive some positive employment data then the Aussie would be an obvious beneficiary due to Australia’s comparative economic outperformance. Regardless, the Forex markets appear to be headed towards a volatile close to a wild week.
Technically speaking, the Aussie faces technical barriers in the form of intraday and 8/9 highs. . As for the downside, the Aussie has multiple medium-term uptrend lines working in its favor along with intraday lows. Meanwhile, the highly psychological .90 level becomes a technical cushion once again.
Price: .9091
Resistances: .9096, .9114, .9127, .9147, .9161, .9181
Supports: .9076, .9059, .9046, .9030, .9017, .8999, .8969
Psychological: .90, August Highs
S&P Futures Calm Following Surge
The S&P futures surged higher yesterday, posting a remarkable defense of our previously highlighted key long-term uptrend line and the psychological 1050 level. Buying in the4 S&P futures returned with a vengeance after U.S. manufacturing PMI data came in at 56.3, topping analyst expectations of 53.2. Considering investors have only been receiving negative U.S. data recently, the encouraging PMI reading gave bulls ammo to take advantage of oversold conditions. Wednesday’s impressive rally has saved the S&P’s long-term uptrend for the time being after flirting with the concept of entering a more lasting contraction. The most encouraging part of yesterday’s manufacturing PMI reading is that the reading had been on a steady downtrend. The reversal sets up the possibility of only a large step down in the U.S. economy and not a double dip. Analysts flooded the wires with estimates ranging from 25-33% chance of a double dip, meaning odds are the U.S. economy will continue to stabilize over the medium-term. The sudden shift in sentiment clearly had an immediate impact on sentiment and we’ll have to see whether equities can post a confirmation rally before week’s end. Markets will have more than enough ammo to make game-changing movements with pending home sales on tap and headline employment data highlighting on Friday. Should employment data happen to surprise to the upside then there would likely be another large rally in equities and the S&P futures could have enough energy to drive past their highly psychological 1100 level. However, unemployment claims are still historically high and yesterday’s ADP figure was nothing to cheer about. Hence, should tomorrow’s employment data disappoint then sentiment could turn sour once again. The ECB will also make its monthly monetary policy decision today, meaning investors will have a hefty amount of psychological and fundamental developments to digest over the next 24-48 hours. That being said, we expect an active end to the trading week.
Price: 1081
Psychological: 1050, 1000
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