May 2009

Nasdaq Looking To Settle Into Range

Index	Strat	Risk	Target
DJIA	Long	7791	9860
NASDAQ	Flat
S&P500	Long	826	1080

To review: “The decline from the October 2007 high is in 5 waves, therefore a multi-month countertrend 3 wave advance is underway.  Fibonacci resistance does not begin until 8736.  Wave B within an A-B-C corrective advance from 6470 is complete at 7792.  The Dow should rocket higher in wave C in the next few weeks.”  9088 is the former 4th wave extreme and an objective.  Near term, there is the potential for a drop below 8230 in order to complete an expanded flat.

The Dow found resistance at 8522 the 61.8% Fibo extension of the 9,795-6,470 decline. A break above there would leave 9,000 as the next barrier. However, if resistance holds we could see a retrace back to 8,120/30 which served as support in October and December of 2008.

The S&P count is the same as the Dow count.  A B wave is complete at 827.  A target is 1086 (100% extension) and the index should remain above 827.

The S&P 500 was virtually unchanged after Monday’s push above 900.  A test of the January 6th high of 943 is likely as the expected longer –term bullish trend continues to be fulfilled. However, if the broader index fails at the May 8th of 930 then downside risks would increase.

The Nasdaq is in the same position as the other US indexes although the short term pattern is not clear.  A deeper corrective rally is likely; perhaps to the 50% at 1902 or the 61.8% at 2094.

The Nasdaq rose back above resistance at 1,725 the 38.2% Fibo level of 2,474-1,262 but it has failed to clear the technical level which leaves it susceptible to a retrace.  Resistance at 1,785 could prove formidable if we see bullish momentum continue and may lead to future range bound price action.

Bank of America’s Ability To Raise Capital Could Help Lift Markets

What To Watch For In The US Session

•    Oil Rises Above $60 bbl
•    Bank of America Raises $13.47 Billion
•    MBA Mortgage Applications Rise

Bank of America’s Ability To Raise Capital Could Help Lift Markets

U.S.  futures were pointing at a higher open as optimism rose overnight on the back of better than expected Japanese GDP figures and Bank of America’s ability to raise $13.47 billion through a sale of its shares. However, we may see gains limited as markets await further evidence that the economy is starting to generate growth and not merely stabilizing after the biggest recession since the Great Depression. MBA mortgage applications up 2.3% will help traders forget the dismal housing starts numbers but may not be enough to get them bullish again on the housing sector. U.S. Treasury Secretary Timothy Geithner will speak today at the Senate TARP hearing and his comments could spark volatility as traders try look to see the government’s intentions regarding the repayment of funds by banks.

Dow Jones     8431.00
The DJIA could see energy names get a lift from rising oil prices. Additionally, the Japanese GDP report has raised optimism that its economy could rebound sooner than expected adding to the improving outlook for the global economy.

NASDAQ      1388.50
The Nasdaq index is also looking at a strong start but we may see upward potential limited as technical resistance is ahead.

S&P 500      903.40
The S&P 500 may see financial trade higher on Bank of America’s ability to raise capital.

Crude Shows Modest Gains, Safe-Havens Gain On Uncertainty

Commodities – Energy

Crude Prices Post Modest Gains As Confidence Recoils On Conflicting News

Crude Oil (WTI) $59.930 +$0.340 +0.54%
Crude prices finished off the volatile session with modest gains for the day as disappointing housing data derailed confidence. Confidence was later lifted by announcements of repayment of TARP loans by some US banks. Crude pricing in past weeks has been driven by equity rallies. The rallies are however sustained by shaky optimism, not hard confirming data. Rallies fueled by such shaky data could just as easily lead to a violent reversal.Today a glimpse of that was shown as optimism was briefly derailed with the release of disappointing Housing Starts figures. The larger-than-expected decline in building activity suggests that a bottom may be much further from forming than many have hoped. On the other hand, later in the day positive sentiment resurfaced as some more solid basis for optimism was announced. Several major banks have indeed filed applications for TARP repayment. These actions can be taken as a large show of confidence from bank CEOs. That in tandem with record-low 3-month Libor rates between European banks presents much more tangible evidence of stabilization for global financial markets. Nevertheless, the specter of further losses from mortgage, credit-card, and student-loan securities looms for US banks. Losses there could once again knock the legs out from financial institutions and weaken lending as institutions will move to horde cash to survive losses. A recovery would thus be unable to be established if capital markets are unable to provide the capital required for companies to expand. As such, a recovery could take most of the year to fully take form. In the meantime, crude demand will remain weak for months to come. Now with information that OPEC members actually increased production in April, worries of supply disruptions may be tenuous at best. Tomorrow’s DoE supply figures may provide better insight in this regard, but nevertheless, both these fundamental pressures continue to point toward lower prices.

Commodities – Metals

Safe-havens Gain As Dollar Declines, Uncertainty Rises

Gold $925.250 +$3.900 +0.42%
Gold prices showed minor changes for the day as markets showed uncertainty . As we noted yesterday, gold will likely maintain strength but remain largely range bound for the short-term. Long-term, if shaky optimism is redeemed by a true recovery forming, dormant inflationary pressures could begin to emerge. Given the sheer amount of capital injected into the economy, this is a considerable risk and will will support higher gold prices. Nevertheless, in the meantime, gold will maintain current prices as a store of wealth due to uncertainty within the markets. As a result, gold prices will likely trade flat or gain modestly for the short-term until data is released confirming a bottom with more certainty.

Silver $14.1850 +$0.3550 +2.98%
Silver prices showed impressive gains for the day as optimism in the markets might have offset some downward pressure from industrial demand expectations. Although considered a safe-haven metal, silver is used in many industrial applications and is thus subject to weakness from lower global production. Recently, this inverse relationship with gold has begun to resurface and could become more pronounced if markets turn bearish again. As a result, strength that would be provided by its safe-haven status could at the same time be offset by lower industrial demand. Consequently, if rallies reverse, silver will likely gain modestly in the short-term.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

European Equities Close Off Higher After Volatile Session

Europe Session Key Developments

• Markets Drop From Earlier Highs On Poor US Housing Data
• Markets Bounce As Libor Continues To Decline, A Positive Sign For Bank Confidence
• US Banks Show Strength By Applying To Pay Back TARP

European equities closed off the volatile session with gains following conflicting data and news releases. Market volatility came on the back of positive prospects from a few key metrics, some of which are pointing to stability in the financial sector. The 3-month Libor for example continues to decline even further. This is a positive sign that bank confidence has risen and that capital may be more readily available in the near future. Meanwhile several banks in the US have applied for repayment of government TARP loans. These actions could signal signs of confidence in the banking sector and what could be the start of stabilization for one of Europe’s largest trading partners. Even so, US Housing Starts data showed a worse-than-expected decline in activity, counteracting some of yesterday’s optimism and challenging the notion that the US housing industry might have bottomed. The effect on the European markets is due in part from the interconnected nature of global markets and its financial institutions. A recovery in Europe will depend to a degree on a turnaround in the US. That being said. even if all factors do indeed begin forming recovery, it is important to remember that the European economy will still remain weak for some time. Loan exposures linger in the holdings of financial institutions. Even with a declining Libor, in a recessionary environment these loans are likely to show further losses and limit the extent to which lending can recover. As a result, the Euro zone will take many months to establish a steady and healthy turnaround. As it stands, optimism rather than hard data has fueled these market rallies. If this is indeed the case, the past sessions’ gains have the potential to reverse in the short-term.

FTSE 100                  4482.25              +35.80               +0.81 %
UK equities were pushed up by strong gains in the Basic materials sector, which gained 4.11%. The Financials sector also gained 3.49%. Market movers by volume in the sector were RBS and Barclays PLC, both gaining 4.36% and 4.99% respectively. Telecoms offset strength in the index declining over 3.22% after Vodafone announced that write-offs from its Turkish and Spanish Operations would nearly halve its profits and the company would speed up cost-cutting plan to be implemented earlier.

CAC 40                       3274.96              +29.57               +0.91%
Solid strength was seen in almost all sectors but was offset by declines in the health care, telecoms and oil & gas industries, which declined 0.69%, 1.89%, and 2.57% respectively. Major market movers by volume were Alcatel-Lucent, which gained 3.65% after announcing subsidiary LGS, won a bid from the United States Department of the Army that totals to $6.3million. Arcelor-Mittall also showed an impressive 6.45% gain after announcing it may halt output from its Kazakh operations pending agreement from labor unions.

DAX                           4959.62             +107.66              +2.22%
The German index showed the most strength in all of the European markets, let by the Industrials and Financials sectors, gaining 4.67% and 3.88% respectively. Siemens-AG-Reg buoyed the industrials with a gain of 5.29% after announcing it would supply 175 wind turbines to the London Array Wind Project. Thyssen-Krupp AG also gained 5.18% after announcing it would close the sale of three industrial units as soon as September. Some weakness in Telecoms was seen as Deutsche-Telekom’s quarterly earnings fell in line with expectations.

IBEX 35                     9341.60             +182.30             +1.99%
The Spanish Index showed strength as well lifted by Basic Materials and Financial sectors which gained 5.11% and 2.99% respectively. Aceronix gained 3.88% after announcing it would raise steel prices by €100 per tonne. Banco Santender helped push up financials after news was released that S&P had assigned preliminary ratings on a £2.0 billion note of which Santender is the originator.

S&P/MIB                  20172.00           +219.00            +1.10%
The Consumer Services and Financial sectors kept the index in the positive for the day with gains of 2.8% and 2.19%. Strength in consumer services came as AutoGrill Spa gained 8.91% after being added to “overweight” list at Unicredit Spa. Unicredit SPA itself also gained 4.5% after it announced requests to the Italian government of over €2.0billion in aid in order to bolster capital. Weakness was seen in Telecoms despite announcement that Vodafone had made an offer to struggling and debt-heavy Telecom Italia for its German unit.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

Euro Failure / Australian Dollar Risk of Reversal is High

Euro / US Dollar

As of this morning, my bias has changed from bull to flat. Since the March top at 1.3742, the EURUSD has traded down to 1.2886 and most recently back above 1.3700. Neither the decline nor the advance are impulses therefore a larger correction is underway. One such count, which I have highlighted in recent days, is a triangle. IF a triangle is unfolding, then wave c of the triangle will begin now and result in a drop down to about 1.3000. An alternate treats the advance from 1.2886 as wave Y of a complex correction from 1.2510. Under this count, 1.3742 would be exceeded prior to a top and reversal.

British Pound / US Dollar

Having exceeded 1.5356, the short term bearish GBPUSD bearish count was eliminated. There is no change to the bigger picture pattern in which wave 4 within the 5 wave decline from the 2007 high is nearing completion. Watch the resistance line drawn off of the 3/24 and 4/6 highs as well as the 200 day SMA as levels that may lead to a reversal. If near term patterns indicate with a high probability that a top is already in place, then I’ll mention as much with an alert at DailyFX.

Australian Dollar / US Dollar

As of this morning, my bias has changed from bull to flat and a I anticipate going short soon. The AUDUSD made a new high as expected. Wave v of C (and therefore wave C) as well as the entire rally from the October low is close to complete (if not already complete). The risk of a top and reversal is high.

New Zealand Dollar / US Dollar

The NZDUSD is lagging the AUDUSD but my bias has changed from bullish to flat here as well. That the NZDUSD has not made a new high and the AUDUSD has may mark a non-confirmation…a divergence. There is divergence as well with daily RSI. Structurally, the NZDUSD rally from .5831 may be a truncated 5th wave (wave v of C in this case).

US Dollar / Japanese Yen

I wrote last week though that “I want to urge caution as the pair approaches 93.50. The circled area could still be a triangle in the X wave position. With this in mind, bears may want to lighten up.” The rally from 94.55 is in 5 waves and confirms that a larger advance is underway, perhaps as part of the triangle. My bias has changed from bearish to flat. Short term support is at 95.60.

US Dollar / Canadian Dollar

I wrote the last few days that “5 waves down from 1.2510 are probably complete so a correction, back to at least 1.1768 (former 4th wave price extreme) is expected. As the correction plays out this week, I’ll look to identify the top.” A top may be in place as the rally from 1.1475 is overlapping (corrective) and the USDCAD reversed from the former 4th wave extreme (an Elliott guideline). However, given that the rally from 1.1475 is probable a 4th wave, a larger correction is possible. 4th waves are often drawn out affairs (complex).

US Dollar / Swiss Franc

Whereas the EURUSD has yet to exceed its March high of 1.3742, the USDCHF has already dropped below its March low of 1.1157. In other words, minimum expectations have been met for wave Y. So, it is possible that a low is in place. As such, my bias has changed from flat to bullish. Confidence is not extremely high but is high enough given the reward / risk at this point.

Jamie Saettele publishes Daily Technicals every weekday morning (930 am EST), COT analysis (published Monday mornings), technical analysis of currency crosses throughout the week (EUR on Tuesday, JPY on Wednesday, GBP on Thursday, AUD on Friday), and the DFX Trend Index every day after the NY close. He is also the author of Sentiment in the Forex Market.

Please send comments about this report to jsaettele@dailyfx.com

Treasury, Bund Bearish Reversal Lacks Momentum

Treasury Note (10-Year)

Short-term Technical Outlook

The break below 122-03 last month may have been pivotal for the ten-year Treasury note; but the price action we have seen since then wouldn’t suggest so. Monday’s decline pushed the contract below the abovementioned level once again; but there is still a range of support that has to be surpassed before the bear wave is back underway. An immediate hold up to declines is the 200-day SMA that matches the intraday pivot for the past three weeks around 120-16. This could turn into a significant trend deflector should momentum vanish. Otherwise, the next target is the swing low from the 8th at 119-22.

Long-term Technical Outlook

The 10 year is holding above the 400 week SMA (save for a few days last week) and the series of lower lows and lower highs since early 2006 is intact so there is no reason to alter the bullish outlook.  Favor the upside and anticipate a record high.

UK Gilt (10-Year)

Short-term Technical Outlook

The bearish reversal the gilt was able to win in March has struggled to develop its footing. This past week, the break below 120 was retraced just as quickly as it was won. Temporary resistance is seen around 121.35; and with the presence of the nearby floor, there is bound to be a breakout (regardless of direction) soon. There is a loose trend of lower lows still in place starting with last month’s swing high; so the technical bias is still bearish until 123.50 comes back into view.
Long-term Technical Outlook

Gilt wave structure is clear.  There are 3 waves complete at the 2008 high.  An unorthodox top was made in 2009 in what is probably wave b of a triangle.  If indeed a triangle is unfolding, then wave c completed last week and waves d and e should unfold over the next month + before a thrust higher completes the entire rally from the 2007 low.

German Bund (10-Year)

Short-term Technical Outlook

Just a few months ago, the bund was cutting a clear channel between 124.65 and 123. Since then, however, we have seen sharp burst of volatility that follow little technical pattern to an end. However, with the bullish reversal from 120.10, we can start to see the rhyme to this technical noise. This reversal occurred on around a major 38.2% Fib retracement pulled from the June to January rally. Another use for this reversal is to further confirm the presence of a descending trend channel that began in February/March. We will see pressure build between this hard support and traversing trend; but as of yet there is still plenty of room to maneuver.

Long-term Technical Outlook

The Bund is similar to the gilt in that I anticipate a new high in a 5th wave within the 5 wave advance from the 2008 low.  Wave 4 may be complete at last week’s low.

Japanese Government Bond (10-Year)

Short-term Technical Outlook

The benchmark JGB is back to cutting trends; but not of the sort that is attached to high volatility and fresh highs or lows. Instead, we seem to have returned to the same pace of congestion that the market was stuck to between November and March – though this time around the trading band is far more constrictive. Over the past three weeks, a series of lows has built up around 136.50 while a loose ceiling around 137.35/50 has capped attempts at retracing the March plunge. This is a tight range and will not likely last as long as the previous one.
Long-term Technical Outlook

Commentary has not changed in months…”a 10 year head and shoulders top may be in the works and 142 should remain intact (if the pattern is to play out) as the right shoulder of the formation.  A break below the neckline would likely see a breakdown that carries into long term support levels of 122.50 and 116.41/117.20.”  This is one of the best trade opportunities of the next year +.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can send them to jkicklighter@cfdtrading.com

Despite Retracements Nikkei And Hang Seng Trends Still Bullish

Nikkei 225

Short-Term Technical Outlook

The Nikkei retracement has extended beyond last Thursday’s lows. We are now testing the confluence of technicals that was major resistance for the market through the end of April and into the begging of May. The seven month, falling trend (former resistance) is now a floor along with the long-term 38.2% Fib retracement and 50-day SMA around 9025/00. This level is integral to holding up the bullish bias the market has held since March. Should this fresh support give way, it would be a quick drop to retest 8,500.

Long-term Technical Outlook

The correction from 7028 has reached the upper end of the former 4th wave triangle. An Elliott guideline is that corrections tend to end near the extreme of the fourth wave of one less degree. There is also divergence with daily RSI at this high. However, the advance has not even retraced 38.2% of the decline from 2007 yet. As such, additional upside seems likely. Structure of the advance does not appear complete either. In fact, the rally could accelerate in wave iii of c. It is worth noting that waves a and c (labels not shown) would be equal near the 50% retracement of the decline (the area is circled).

S&P/ASX 200

Short-Term Technical Outlook

Unlike the Japanese and Hong Kong markets, the Australian equity benchmark index has a relatively unstable platform for support. An ill-defined, rising trend following the lows starting in mid-March is the primary technical pattern for bulls to follow. On the other hand, we have the double top at 3,815 which can once again prove troublesome for advances. Momentum would be readily available should the aforementioned resistance give way. Alternatively, the choppy and closely set lows of the past two months could easily trip up a bearish break down.

Long-term Technical Outlook

The S&P/ASX is in a similar position. The rally from the low has reached and exceeded the 4th wave extreme but the advance is shy of Fibonacci resistance. Only a drop below 3661 would suggest that a top is in place.

Hang Seng

Short-Term Technical Outlook

While the Hang Seng opened the week sharply lower, the market would make up for the gap through the active trading session; but recovering its lost ground and then some. The initial decline was notable because it would test the 16,300 lows from the past few weeks. A reversal subsequently held the market back from retracing the gaps from last month that drove us through 16,000. The long-term 50% Fib retracement of the July-October down draft near 17,050 is offering a temporary point of resistance; but a true bullish bias can easily overrun this level.

Long-term Technical Outlook

The Hang Seng rally is closing in on the 50% retracement of the decline from the 2007 high. While there is the possibility of short term fluctuations, additional upside is likely in order to satisfy equality with waves a and c (labels not shown). These waves would be equal at 20362, which is very close to the 61.8% of the decline.

Written by: John Kicklighter and Jamie Saettele, Strategists for CFDTrading.com
Questions? Comments? You can email them to John at jkicklighter@cfdtrading.com.

US Dollar Slips Despite Increased Homebuilder Confidence, Mixed Comments by Treasury’s Geithner

- Euro Bounces Against Dollar, Yen, But Euro Crosses Remain Confined to Tight Ranges
- British Pound Trading Below 1.5350 Ahead of Key UK CPI Report on Tuesday
- Japanese Yen Down as FX Carry Trades Surge – Watch for Japanese GDP on Tuesday Night

US Dollar Slips Despite Increased Homebuilder Confidence, Mixed Comments by Treasury’s Geithner
The US dollar lost ground on Monday as increased risk appetite fed increased demand for FX carry trades, commodities like oil, and equities, as the S&P 500 ended the day up 3.04 percent at 909.71. While there weren’t any top tier economic indicators on hand, US news was generally optimistic. Indeed, Treasury Secretary Tim Geithner said in comments at the National Press Club that the credit markets are thawing, that the economy has “clearly stabilized” but remains “fragile,” and also said that unemployment may keep rising even if growth rebounds. Geithner went on to say that the government shouldn’t set caps on compensation and should instead focus on pay incentives, which must be tied to “long term factors” rather than encourage an increase in short-term risk. On the government’s massive budget deficit, Geithner noted that it would be the “defining challenge” of the next five years as the nation’s fiscal conditions is “unsustainable.”

Meanwhile, the National Association of Home Builders (NAHB) index rose to 16 in the month of May from 14, the highest since September, indicating that confidence amongst homebuilders is improving. That said, readings below 50 signal that the majority views conditions as remaining poor, suggesting that the US housing sector remains far from recovery. However, upcoming data may show signs of improvement for the month of April after staging a sharp deterioration in March. Indeed, the US Commerce Department’s housing starts index is projected to edge up to 520,000 from 510,000 while applications for building permits may increase to 530,000 from a record low of 516,000. Such moves would bode well for next week’s release of NAR existing home sales and Commerce Department’s new home sales, as the reports tend to correlate from month to month. Better-than-expected readings could offer a boost to risk appetite, which may ultimately benefit FX carry trades and stock market futures, while disappointing readings may lead to US dollar gains amidst flight-to-safety.

Euro Bounces Against Dollar, Yen, But Euro Crosses Remain Confined to Tight Ranges
The euro made headway against the US dollar and Japanese yen, as EUR/USD broke above 1.3540/45 and EUR/JPY bounced from rising trendline support on the daily charts. However, when it came to the rest of the majors, the currency was a laggard, with EUR/CHF backing off from falling trendline resistance at 1.5150 and EUR/GBP holding within a range of 0.8800-0.9025. Euro-zone economic data was better-than-expected, as the region’s trade deficit narrowed to 2.1 billion euros in March from 2.9 billion euros thanks to a 1.4 percent increase in exports. Adding to this, imports rose 0.6 percent, suggesting that both foreign and domestic demand are starting to improve, albeit at a very slow pace.

On Tuesday, the release of the German ZEW survey of investor sentiment for the month of May is anticipated to reflect mixed sentiment on current conditions and the economic outlook. Indeed, the index of sentiment on the current situation is forecasted to remain near 5-year lows at -90.0, up from -91.6 while the outlook is projected to rise to +20 from +13. This report can be market-moving for the euro on a very short-term basis upon release at 5:00 ET, with disappointing results likely to weigh on the currency. On the other hand, better-than-expected data could provide a bit of a boost for the euro.

British Pound Trading Below 1.5350 Ahead of Key UK CPI Report on Tuesday
The British pound tested last week’s highs against the US dollar near 1.5350, but with FXCM SSI showing that traders remain let long GBP/USD by a ratio of over 2:1, the contrarian indicator suggests an intermediate top may be in place (learn more about SSI at the end of last week’s update). Interestingly enough, event risk for GBP/USD will pick up tomorrow as the UK’s consumer price index (CPI) reading for the month of April is expected to rise 0.4 percent, the third straight increase. However, the annual rate of growth, which is more closely watched by the Bank of England, is forecasted to fall to a more than one-year low of 2.4 percent from 2.9 percent, keeping inflation within the central bank’s acceptable range of 1 percent – 3 percent, but above their 2 percent target. If CPI falls more than projected, the British pound could pull back sharply as the markets will anticipate that the BOE will expand their quantitative easing efforts even further. On the other hand, if CPI holds strong, the currency could rally in response.

Japanese Yen Down as FX Carry Trades Surge – Watch for Japanese GDP on Tuesday Night
The Japanese yen was the weakest of the majors on a day that risk appetite lifted FX carry trades, making it all the more clear that fundamentals are not driving price action for currencies like the yen and the US dollar. This point could be highlighted tomorrow night, when Japan’s Cabinet Office will release preliminary growth readings. After three consecutive quarters of contraction, the outlook doesn’t look good. There are signs that businesses are suffering considerably at the hands of waning domestic and foreign demand. Consumers have very little to work with these days, as the jobless rate has slowly climbed to a nearly five-year high, and perhaps even worse, cash earnings growth contracted by 3.7 percent in March from a year earlier, the sharpest drop since 2002.  Meanwhile, Japanese exporters have had to grapple with not only slowing global growth, but also the appreciation of the Japanese yen, all of which has led foreign-bound shipments to tumble a whopping 46.5 percent in March from a year ago, according to figures published by the Ministry of Finance. As a result, a Bloomberg News poll of economists shows expectations for GDP to fall 4.3 percent in Q1, with the annualized rate forecasted to plummet by a record 16.1 percent.

**For a full list of upcoming event risk and past releases, go to www.dailyfx.com/calendar

ECONOMIC DATA

SUPPORT AND RESISTANCE LEVELS

Written by: Terri Belkas, Currency Strategist for DailyFX.com
E-mail: tbelkas@dailyfx.com

Crude Prices Gain As Positive US Housing Data Rallies Equities

Commodities – Energy

Crude Prices Gain As Positive US Housing Data Rallies Equities

Crude Oil (WTI)                $59.290                +$2.950       +5.24%
Crude prices rose substantially for the session as optimism fueled equity rallies. Lowe’s Cos. earnings beat analyst estimates and following the release by forecasting a better quarter  for the company. This helped to raise market optimism in earlier trading. Later, the National Association of Homebuilders sentiment survey built on the optimism further as it showed a second month of gains, rising to 16, the highest since September 2008. These pieces of data suggest housing conditions may indeed be improving in the US and sets the stage for tomorrow’s US housing data. If the data continues to show better results, rallies could continue going forward. Meanwhile, despite expectations from the Department of Energy that crude prices would remain weak due to large stockpiles, supply worries grew over threats from a Nigerian militant group to block off waterways used for energy transports in the region. Further worries came after news emerged of a Sunoco Inc. refinery fire. Nevertheless, even with supply hiccups, global demand and supply factors point to further weakness in prices. Regardless, fundamental reasoning has had little impact on crude pricing in past months as the major influence on price movement comes from risk sentiment. In this regard, strength provided by equity rallies may be short-lived. Much of the optimism that has been spurred up came from minor improvements in housing data and commentary but little data that fully supports a bottom. The violent up-swing in equity rallies could just as quickly be retraced if there isn’t further positive news. Given the nature of the crisis, the latter is more likely than the former. As aresult, barring further equity rallies, crude will likely decline in the near-term.

Commodities – Metals

Safe-havens Fall As Equities Rally

Gold                                  $920.200             -$14.850     -1.59%
Gold prices declined today as equity markets swung upward. Prices have benefitted from the uncertain nature of the economy in recent weeks and today’s recovery pulled some of that steam out of safe-havens. On the other hand, the if rallies are redeemed by a true recovery forming, this would open up the way for dormant inflationary pressures to emerge. Given the sheer amount of capital injected into the economy, this is a considerable risk and could begin to strongly support higher gold prices. Nevertheless, even if equities turn bearish again, until the market gets more solid data pointing firmly to which direction the economy is headed, gold prices will likely trade flat or gain modestly for the short-term.

Silver                                $13.7400             -$0.2500     -1.79%
Silver prices followed gold’s down for the day. Although inflationary pressures provide upside potential in the future, silver is used in many industrial applications and is thus subject to weakness from lower global production. Recently, this inverse relationship with gold has begun to resurface and could become more pronounced if the economy turns weaker. As a result, strength that would be provided by its safe-haven status could be offset. Consequently silver will likely gain modestly in the short-term.

-Written by Stefan Tifigiu, CFDTrading Research
Please send any comments about this report to Stifigiu@fxcm.com

Equities at Risk of Bearish Reversal

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