August 2009

Euro Decline May Accelerate

Euro / US Dollar

Weakness from the top of the range may still be corrective but there is an alternate bearish count in which the rally to 1.4380 is wave C of an expanded flat.  The rally from yesterday’s low is a clear 3 wave affair (corrective) so favor the downside.  A break of 1.4200 could see an acceleration of the decline in a 3rd wave.

British Pound / US Dollar

“The bearish count is strong against 1.6629…”  Former support at 1.6274 is potential resistance near term.  Focus is on 1.5980, which is a level that could produce a sizeable bounce.  Only a break of 1.5800 would eliminate the range and clear the way for an extended decline.

Australian Dollar / US Dollar

As the AUDUSD nears its 2009 high, the bearish short term pattern has been called into question yet remained valid.  A drop below .8151 would negate any bullish potential and open up a move to .7700.

New Zealand Dollar / US Dollar

Coming under .6640 would negate the blow-off top scenario that I have discussed in recent days and also mean that channel support (since March) has been broken.  RSI divergence at multiple degrees of trend favors bears.

US Dollar / Japanese Yen

After a false break through channel resistance, the USDJPY is back below both the 55 and 200 day moving averages.  The pair has failed at the 38.2% of the decline from 97.81.  93.00 is potential support and only a break below 91.73 would eliminate the larger range and give scope to a test of 87.00 and legitimate breakdown.  Risk on shorts can be moved to 95.10.

US Dollar / Canadien Dollar

The rally from 1.0717 is impulsive (5 waves) and supports the expanded flat interpretation of price action since 8/12 that I proposed yesterday.  A sharp decline this morning did find support from a former congestion zone.  A break above 1.1000 shifts focus to 1.1130.

US Dollar / Swiss Franc

The USDCHF is in a similar situation to the EURUSD.  Failure to stay above 1.0561 suggests that the USDCHF is headed for a test of the December 2008 low at 1.0367.  However, the decline has failed to accelerate so wave C from 1.1973 may be complete.  A rally above channel resistance would confirm a low.

British Pound / Japanese Yen

Bigger picture, the pair remains in a large range (146.70-163.00) and 150.00 is potential support before the range low.  Former support at 153.50 is potential resistance as is potential trendline resistance drawn off of the 8/10 and 8/24 highs.

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) and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.  Follow his intraday market commentary at DailyFX Forex Stream.  Contact Jamie at jsaettele@dailyfx.com

Asian Stock Markets Falter as China Plans to Curb Overcapacity, Investments

Asia Session Key Developments

• China to Curb Capacity, Investments
• Japanese Yen Strengthens on Risk Aversion

Stock in Asia/Pacific tumbled lower on Thursday, with the Hang Seng leading the decline after plummeting 213.57 points (1.04%) to end the day at 20242.75. Fears of a slower global recovery weighed on the markets after China’s cabinet announced it will curb overcapacity in specific industries such as steel and cement and the excess build in investments. The comments from the Chinese government pushed investors to curb their appetite for higher yielding assets, which led the Japanese yen higher across the board, and the rise in risk aversion may continue to drag on the global equities market as investors weigh the outlook for a sustainable recovery.

Nikkei 225                                           10,473.97

Japanese stocks plummeted on Thursday, with the Nikkei falling 165.74 points (1.56%) to close at 10,473.97.  Industrials declined 2.22% on the day to lead the decline, while technology and oil & gas dropped 2.05% and 1.77% respectively. Shares of Nippon Sheet Glass slumped 7.22%, with Chiyoda Corp and Mitsumi Electric Co falling 5.06% and 4.94% respectively. The downturn in market sentiment may carry over into Friday’s session as the economic docket is expected to show a rise in unemployment paired with a drop in consumer confidence, which is likely to reinforce a weakening outlook for the domestic economy. At the same time, the Japanese yen advances against its currency counterparts following the rise in risk aversion, and downturn in market sentiment may continue to drag on the equities market as investors raise demands for lower-yielding assets.

Hang Seng                                         20,242.75

The Hang Seng fell the most in a week, dropping 213.57 points (1.04%) to 20,242.75, with consumer service and consumer goods leading the decline after falling -9.14% and -4.18% respectively.  Esprit Holdings Ltd, the biggest Hong Kong clothing retailer posted its first profit drop in more than a decade, sending shares down 15%.  UBS cut its rating on Esprit to “neutral” from “buy”, while Morgan Stanley lowered the recommendation to “equal weight” from “overweight.”  In retail building materials, Anhui Conch Cement Co., China’s biggest maker of the building material, slid 4.2 percent, while Wharf (Holdings) Ltd jumped 5.9 percent after it reported profits, and China Telecom Corp. advanced 1.6 percent after beating analyst estimates on earnings.

S&P/ASX 200                                      4450.80

The ASX edged lower by 3.70 points (0.08%) to 4,450.80, with basic material and telecommunications sector leading the decline by -9.14% and -4.18% respectively, while the industrials held up the index by climbing 0.71%.  Shares of BHP Billiton, the world’s largest mining company, slipped 3 percent while Macmahon Holdings Ltd, an Australian mining and construction company, gained 4 percent. On the other hand, Pacific Brands, Australia’s largest maker of under garments, was downgraded by Citigroup from “buy” to “hold” after reporting a net loss for the fiscal year ending in June.

Upcoming Asian Session Event Risk / Economic Releases

European Stock Markets To React On Ease Of Data Digestion

Europe: What to Watch For

• US Stocks Flat On Mixed Economic Signals
• German Consumer Price Index Set To Fall For Second Consecutive Month
• UK Nationwide House Prices Expected To Rise

US Markets remained flat during Wednesday’s session as investor sentiment appeared stable after mixed signs from the economy.  Durable Goods Orders not including transportation vehicles stalled short of economists’ estimates rising 0.8% which spawned some concerns that an economic recovery may be slower than consensus.  While durable goods weighed on some, July’s New Home Sales showed improvements in current conditions of housing markets.  Sales surged 9.6% in July from the previous month as 433K purchases of new homes indicated recuperating demand.  German Consumer Price Index is set to fall for the second consecutive month as ailing demand depresses consumer prices.  Deflationary threats in the Euro-Zone’s largest economy will threaten the entire region as stifled consumption will spread to neighboring countries in the interdependent continent.

DAX 30   5521.97

German Consumer Price Index is expected to fall -0.4% in the year through August, continuing the monthly trend with its previous reading of -0.7% in July.  Falling prices for the second straight month will pose a credible deflationary threat to the Euro-Zone’s largest economy.  The onset of deflation could stall any hopes of recovery as businesses and consumers halt spending to wait for the cheaper prices.

FTSE 100   4890.58

UK Nationwide House Prices showing some signs of appreciation with expectations of a 0.5% increase in the month of August, down from July’s 1.3% reading.  The short-term increase indicates that prices and demand are beginning to stabilize, albeit the UK housing market still remains in critical condition with annual rates showing a -3.9% decline.

CAC 40   3668.34

Bloomberg France Retail Purchasing Manager Index will help markets evaluate the current condition of the French retail industry and overall consumer spending as managers adjust inventories ahead of forecasted demand.

IBEX 35   11376.40

With no events on the economic calendar, the Spanish index will likely follow trends seen in comparable European markets.

FTSE / MIB   22554.65

Italian Consumer Confidence is set to measure at 107.9 in August rising slightly from July’s 107.5.  The steady increase in Consumer Confidence indicates improving sentiment in consumer spending, price stability, and overall economic welfare.

Upcoming European Session Event Risk / Economic Releases

US Stocks Sidestep After Mixed Signs From Economy

US Session Key Developments

• Durable Goods Orders Ex Transportation Smaller-Than-Expected In July
• July New Home Sales Exceed Expectations

US Markets remained flat during Wednesday’s session as investor sentiment appeared stable after mixed signs from the economy.  Durable Goods Orders not including transportation vehicles stalled short of economists’ estimates rising 0.8% in July, slightly lower than 0.9% expectations.  The report spawned some concerns that an economic recovery may be slower than consensus.  While durable goods weighed on some, July’s New Home Sales showed improvements in current conditions of housing markets.  Sales surged 9.6% in July from the previous month as 433K purchases of new homes indicated recuperating demand.  Oil fell by as much as 1.9% after an unexpected rise in inventories.

DOW 30   9543.52               +4.23                      +0.04%

General Electric Co., 3M Co., and Caterpillar Inc slumped more than 1.2% after the Durable Goods Orders report weighed on prospects for strong revenue growth.

SPX 500   1028.12              +0.12                      +0.01%

Basic Materials and Industrials suffered after a weak report of durable good purchases in July.  The VIX Index, a fear gauge fell from opening highs around 25.50 to close at 24.95.

NAS 100   2024.43              +0.20                      +0.01%

The Technology sector, which comprises nearly 50% of the NASDAQ ebbed -0.05% as Telecommunications and Utilities led gains.

Daily Commodities Fundamentals: Crude Falls Despite Stronger-than-Expected Economic Data

North American Commodity Update, Last Updated 8/26/2009 5:02 PM EST (GMT = EDT +4:00)

Commodities – Energy

Crude Falls as Energy Report Posts Surprise Gain in Inventories

Crude Oil (WTI)   $71.40                               -$0.65                               -0.90%
Crude oil fell ahead following the Department of Energy report on inventories with traders continuing to sell the commodity after it failed to break above resistance in recent days. The report showed that stockpiles of oil actually increased by 128,000 barrels while economists had expected a decline of 1.15 million. Briefly, oil moved towards $73 per barrel but quickly fell prior to the market opening in the US. While equity markets closed lower in Europe and the US, there remains high uncertainty as strong fundamental reports failed to lift the bourses higher. Sentiment may indicate that rallies in global stocks may be temporarily stalled, which could bode poorly for crude. Also, while stimulus spending kicks into high gear in 2010, the prospects for demand remain murky. Excluding autosales, US durable goods rose less than one percent, just a tick below the Bloomberg consensus. Also impacting trading today was a return in risk aversion that saw the dollar as the best performing currency while commodity and exporting nations, New Zealand, Australia and Canada, fell. The rapidity of the recent move is not one which should be ignored, as further downside appears likely, however much will depend on tomorrow’s release of inventory reports by the Department of Energy.

Commodities – Metals

Metals Continue to Show Volatility While Closing Slightly Higher

Gold                   $946.9                           +$0.90                              +0.10%
Gold futures closed marginally higher following a volatile session that saw the metal near $952 per troy ounce. Despite the initial strength, the commodity was unable to hold gains as US markets opened and dollar strengthened. Short-term support may be appearing at approximately $941 per ounce. Longer-term direction for the metal remains uncertain as technical analysis shows no clear direction ahead while fundamental forces could bode well for either case. On the one hand, inflation remains subdued through the rest of the year, along with risk appetite increasing that limits the safe-haven metal’s appear. On the other side, economic recovery could create a considerable boost for jewelry demand, which remains one of the strongest forces affecting the price of the metal. Of note, several large institutions including JPMorgan and Standard Chartered expect gold to rise above $1,000 before the end of the year.

Silver                 $14.375                   +$0.029                               +0.20%
Silver prices moved slightly higher following a volatile session that had the commodity as high as $14.49 early in the session and as low as $14.095 as US markets opened. The metal ultimately closed higher as fundamental data came in better-than-expected and US equities managed to closed flat on the session. While silver remains well off its highs, resistance above $14.50 may limit an advance and should trade remain depressed, the metal may move lower in the near-term.

-Written by Roman Kadinsky, CFDTrading Research
Questions/Comments about this article? Send them to Rkadinsky@fxcm.com

European Stocks Fall Despite Stronger Economic Data in German and US Market

Europe Session Key Developments

•    Commodities Move Lower on Selling Pressure
•    Economic Data Beats Expectations

European Markets fluctuated widely throughout the day while US dollar strength, along with commodity weakness, set a tone of risk aversion that ultimately caused four of the five majors to close lower. Data from the German IFO, as well as US Durable Goods and housing data, proved better-than expected but failed to lift stocks into the close. Valuations remain high in equities with traders continuing to buy in several sectors including technology and utilities today while sectors related to commodities tumbled. Overall, markets remain in uncertainty as trading appears to show better-than-expected data as priced in along with expectations for a turnaround in the third and fourth quarters. Investors may, however, be disappointed in the coming earnings season as cost-cutting efforts begin to lose effect and consumer spending remains poor. Financial stocks, while in a far healthier state than in months past, may also see weakness as safer housing loans and credit cards see a rise in losses from higher unemployment.

FTSE 100                      4,890.58                   -26.22               -0.53%
The British index fell more than half of one percent as six of the ten sectors fell along with losers outnumbered winners by a ratio of 2:1. Consumer Goods rose the most at nearly three-quarters of one percent, while Basic Materials fell 2.83% as commodities dropped. Raw material producers continue to fall with Fresnillo down 5.18% and Antofagasta and Xstrata down more than four percent each. Gains also proved high in several firms: outsourcing firm Serco climbed six percent as the CEO made comments on growth after profit rose 34% at the firm. Royal bank of Scotland also continued to top the leaderboard with a gain of 5.3%.

CAC 40                     3,668.34                   -12.27                 -0.33%
Stocks in France closed lower with the smallest decline of the five majors as the nation appears one of the safest of the larger nations in Europe. Five of ten sectors fell with Basic Materials down 2.11% while Technology rose 5.12% on the heels of a nearly twelve percent gain in Alcatel-Lucent on news of a contract with China Telecom for IP infrastructure. Better-than-expected profit at Suez Environnement in the second quarter helped its stock rise an equally impressive 11.51%. Losers meanwhile included firms seeing considerable upside in recent days, Saint Gobain was lower by 5.08% while Bouygues was down 3.8%.

DAX                         5,521.97                    -35.12             -0.63%
German stocks fell the most of the five majors despite strong showing in the German IFO report. Financials climbed 0.88% while all other sectors fell except for Health Care. Industrials and Basic Materials fared the worst with declines of more than one percent each while three stocks fell for each stock that gained. Chemical maker BASF fell the most at 3.33% as Collins Stewart analyst James Knight dismissed CEO Hambrecht’s comment that the firm was a possible takeover target. Volkswagen also continued to fall with a decline of 2.97% while steelmaker conglomerate ThyssenKrupp dropped 2.37% along with an equally large drop in steelmaker Salzgitter. Gains in the Financial sector occurred as French bank Natixis received a 50 billion guarantee on risky assets from its parent company. Allianz and Commerzbank both saw gains of more than three percent.

IBEX 35                     11,376.40                   -51.40                 -0.45%
Spain’s IBEX35 fell nearly half of one percent as seven of nine sectors fell with Basic Materials down 1.8% and Oil & Gas dropping 2.09% as commodities sold sharply earlier in the session. Losses proved highest in engineering firm Abengoa and steelmaker ArcelorMittal. Despite this, the index remains the best performer for 2009 of the five majors with a gain of 23.71%.

S&P/MIB                        22,554.65                    +80.82                  +0.36%
The Italian bourse diverged from its counterparts with a higher close by more than three-tenths of one percent as Banco Popolare helped lift stocks with a gain of 14.7% following better-than-expected earnings and an upgrade from Credit Suisse and Cheuvreux boosting its price target. Other financials seeing considerable gains included Intesa SanPaolo rising 2.41% as its investment banking unit reported profit more than doubling, while UBI climbed 2.31%. Jeweler Bulgari, meanwhile, saw the largest decline at 3.73% as profit taking affected the firm following sharp upside in recent days.

Written by Roman Kadinsky, CFDTrading Research
Please send any comments about this report to Rkadinsky@fxcm.com

Dollar Rally From Depressed Levels – May be Continuation of Reversal

Euro / US Dollar

Weakness from the top of the range may still be corrective but there is an alternate bearish count in which the rally to 1.4380 is wave C of an expanded flat.  Given the sentiment of the day – which is extremely USD bearish – this count deserves full attention (markets reverse at sentiment extremes).  The downside is favored until at least 1.4172 (61.8% of 1.4044-1.4380 rally) – although it is possible that the longer term trend has reversed.

British Pound / US Dollar

Focus is on 2 counts – an ending diagonal from 1.58 or an impulsive decline from above 1.7000.  The bearish count is strong against 1.6629 and there is potential at 1.6240/70.  Look to sell rallies into this level.

Australian Dollar / US Dollar

As the AUDUSD nears its 2009 high, the bearish short term pattern has been called into question yet remained valid.  A drop below .8151 would negate any bullish potential and open up a move to .7700.

New Zealand Dollar / US Dollar

Coming under .6640 would negate the blow-off top scenario that I have discussed in recent days and also mean that channel support (since March) has been broken.  RSI divergence at multiple degrees of trend favor bears.

US Dollar / Japanese Yen

After a false break through channel resistance, the USDJPY is back below both the 55 and 200 day moving averages.  The pair has failed at the 38.2% of the decline from 97.81 and Fibonacci resistance extends to 96.13.  I like the idea of selling rallies with stops above 97.81.

US Dollar / Canadian Dollar

The USDCAD rally from 1.0631 is in 3 waves (an expanded flat also a possibility – like the EURUSD).  A break to a new low would expose a Fibonacci extension at 1.0317, the 78.6% retracement at .9914 and the 100% extension of the 1.3068-1.0782 decline at .9444.  This level intersects a potential channel line at the end of September.  1.0950 is resistance.  However, the mentioned expanded flat count is valid and gives scope to additional strength through 1.1130.

US Dollar / Swiss Franc

The USDCHF is in a similar situation to the EURUSD.  Failure to stay above 1.0561 suggests that the USDCHF is headed for a test of the December 2008 low at 1.0367.  However, the decline has failed to accelerate so wave C from 1.1973 may be complete.  A rally above channel resistance would confirm a low.

British Pound / Japanese Yen

A support line is giving way and a break below the daily lows near 153.50 would expose the July low below 147.00.  The short term bearish bias is valid against yesterday’s high of 155.60.

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) and the DFX Trend Index every day after the NY close.  He is also the author of Sentiment in the Forex Market.  Follow his intraday market commentary at DailyFX Forex Stream.  Contact Jamie at jsaettele@dailyfx.com

Asian Stock Markets Advance With Nikkei, ASX Leading the Rally

Asia Session Key Developments

• China’s Leading Indicator Improves
• Japanese Trade Surplus Narrows in July

The Asian equities market pushed higher on Wednesday with the Nikkei leading the pack, climbing 142.35 (1.36%) to 10,639, which is the highest level since October. The rise in U.S. consumer confidence paired with the less than expected drop in home prices have supported the rise in the stock markets, lifting the MSCI Asia Pacific Index to a two week high on speculation that government stimulus packages and lower borrowing costs will revive the global economy.  However, Japan’s exports tumbled 35.7% signaling a weak recovery ahead according to today’s report however, market participants have overlooked the data they anticipate China and India to lead the global economy out of recession.

NKY 225                                           10,639.71

Japanese stocks surge to a 10-month high, with the Nikkei advancing 142.35 points (1.36%) to close at 10,639.71. Telecommunications gained 3.92% on the day to lead the rally, while basic materials and consumer services increased 1.85% and 1.78% respectively.  Shares of Mitsubishi Materials advanced 6.42%, with Citizen Holdings and Nikon Corp rising 6.37% and 5.06% respectively, while Hokuetsu Paper Mills added 5.54% on the day. Additionally, Shares of Toyota Motor also rose to 1.5% as the carmaker announced possible global production capacity cuts by year end 2010.

HSI                                                         20,456.32

The Hang Seng Index rose 21.08 points (.010%) to close the day at 20,456.32, led by a 1.79% increase in consumer services and a .92% rise in consumer goods. Esprit Holdings, the largest clothing retailer rose 3.19% despite its 26% full-year profit fall while China Life Insurance rose 3.16% after announcing first-half profits increasing 15% on investment returns. On the other hand, China Overseas Land & Invest slipped 2.90% as the recent upsurge in property prices have spurred policy tightening, which directly affects the physical and stock market that the company competes in.

ASX 200                                            4,454.50

The ASX climbed higher on Wednesday with a 48.70 (1.1%) gain to close at 4,454.50, led by utilities. At the same time consumer goods were up 1.37% and telecommunications gained 1.32% on the day.  Shares of Babcock & Brown Infrastructure jumped a whopping 90%, after the company said it agreed to the terms of separation from Babcock & Brown Ltd, while Consolidated Media Holdings Ltd climbed 12% as the media company plans to sell its stake in Seek Ltd, Australia’s largest internet company, which was downgraded by UBS from “buy” to “neutral”.

Notable Asian Session Event Risk / Economic Releases

European Stock Markets Look To Rise Off US Consumer Confidence

Europe: What to Watch For

• US & Asia Stocks Rise On Rising US Consumer Confidence
• German IFO Survey- Expectations Set To Rise In August

US Markets rose as better-than-expected consumer confidence and home prices lifted hopes that the recession is ending.  US Consumer Confidence rose to 54.1 in August breaking past the 50 boom-bust mark and exceeding expectations of a meager 47.9.  House Price Index rose to 0.5% in June showing some improving signs in housing markets.  Oil dropped 3.1% during the US session, the first decline in six days.  German IFO Survey- Expectations is set to rise to 92.0 in August, up from July’s 90.4 reading.

DAX 30   5557.09

German IFO Survey- Expectations is set to rise to 92.0 in August, up from July’s 90.4 reading.  The metric indicates improving sentiment by German firms for the next six months corroborating other reports such as the surprising growth in German GDP that the Euro-Zone’s largest economy is showings positive signs of recovery.

FTSE 100   4916.80

With no events on economic calendar, the British index will likely follow similar trends seen in comparable European markets.

CAC 40   3680.61

Bourbon SA, the oil services company reports first-half earnings as oil dips for the first time in a week.  Dexia SA, the world’s largest lender to local governments may report that second-quarter earnings fell 27% on analyst estimates.  Natixis, the French investment bank whos losses forced its largest shareholders to merge, will report first-half earnings.  Suez Environnement SA, the world’s second-biggest water company reports first-half earnings.

IBEX 35   11427.80

Abengoa SA, the Spanish infrastructure company will report first-half earnings amid record fiscal stimulus which likely helped prop up the company’s recent performance.

FTSE / MIB   22473.83

Banca Popolare di Milano Scrl, the country’s oldest cooperative bank posted a 19% drop in its second-quarter earnings from falling profits from lending and defaulting loans.

Upcoming European Session Event Risk / Economic Releases

Country	GMT	Release / Event	Expected	Previous
EUR	8:00	German IFO- Expectations (AUG)	92.0	90.4
EUR	8:00	German IFO- Business Climate (AUG)	89.0	87.3
EUR	8:00	German IFO- Current Assessment (AUG)	86.0	84.3

US Stocks Rise After Strong Reports On Consumer Confidence And Home Prices

US Session Key Developments

• US Consumer Confidence In August Stronger-Than-Expected
• House Price Index Rises 0.5% In June

US Markets rose as better-than-expected consumer confidence and home prices lifted hopes that the recession is ending.  US Consumer Confidence rose to 54.1 in August breaking past the 50 boom-bust mark and exceeding expectations of a meager 47.9.  The Conference Board’s report is generally linked to consumer spending, which will be a huge impetus toward economic recovery.  House Price Index rose to 0.5% in June showing some improving signs in housing markets.  Oil dropped 3.1% during the US session, the first decline in six days.

DOW 30   9539.29               +30.01                   +0.32%

Financials and Industrial led gains in the DOW rising 1.13% and 0.84% respectively.  Oil and Gas fell by -0.51% as commodities retreated after seeing nearly a week of consecutive gains.

SPX 500   1028.00              +2.43                      +0.24%

Macy’s Inc and Bed Bath & Beyond soared more than 3.4% on reports that consumer confidence is recovering.  Pulte Home Inc, the nation’s largest builder by market value rose 3.5% as house prices continued to rise in June.  The VIX Index, a fear gauge remained flat.

NAS 100   2024.23              +6.25                      +0.31%

The NASDAQ rose with the rest of the indexes as economic indicators bolstered investor sentiment.

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