August 2009

Euro Takes out Key Level; Support at 1.4200

The EURUSD rally above 1.4330 negates the bearish bias and makes it unlikely that a top is in place.  The support zone is now 1.4200/80.  A drop into this zone would warrant consideration of long positions for a break above the 2009 high and potential test of 1.4720.

Staying below 1.6672 keeps the GBPUSD on a path lower but given EURUSD price action, short positions are a dicey proposition.  In the event of a move through 1.6672, focus would shift to 1.6720 and 1.6837.  Potential short term support is at 1.6540.

The decline from .8484 is in 5 waves, suggesting that the larger trend has turned down.  However, the AUDUSD has exceeded all levels of potential resistance (including the 61.8% retracement).  This and the EURUSD rally above 1.4330 makes me skeptical of the bearish AUDUSD pattern.

Same story regarding the NZDUSD.  The failure ahead of the ending diagonal resistance line is bearish but the acceleration in the NZDUSD rally from channel support is clearly not bearish.  Still confined to a range for now, there is little confidence in the bearish pattern.

The short term pattern is not especially clear but the false break above channel resistance and price again below the 200 day SMA keeps me looking lower.  The moving average at just above 94 is potential resistance as is the August 18th high at 95.30.

The drop below 1.0791 leaves the rally from 1.0631 in 3 waves and suggests that the USDCAD is probably headed to a new 2009 low.  Resistance is 1.0860/1.0950 going forward.

Failure to stay above 1.0561 suggests that the USDCHF is headed for a test of the December 2008 low at 1.0367.  Dropping below there would possibly complete a 3 wave drop from 1.2303.  A target is near parity (1.0037 is the 100% extension).

A triangle may be unfolding since the low was made at 153.44.  Triangles are continuation patterns so favor a break below 153.44 before a more important low forms.  Short term resistance is at 156.80 and price ideally remains contained by the resistance line drawn off of the August 10th, 13th, and 20th 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

Daily Commodities Fundamentals: Commodities Advance Following European PMI, Bernanke Comments

Commodities – Energy

Crude Rises as Economic Data Lifts Optimism on Future Demand

Crude Oil (WTI)   $74.02                               +$1.11                               +1.52%
Crude ended the week rebounding off last week’s decline to close near resistance around $75 per barrel. Specific action on the day saw the commodity start off lower on concerns China will curb lending. As data flowed in from Europe, including PMI figures that shows expansion in French manufacturing and German services, oil began to rally higher above $74. Uplifting comments from Fed chief Bernanke also helped traders keep an optimistic outlook. US dollar weakness also continued against major crosses, helping to lift the nominal value of commodities. Overall, crude closed the session up more than one percent while weekly gains proved considerable at more than six percent. Direction in the following weeks remains uncertain as a higher push could see the rally continue well towards $85 should resistance be broken, while a downward move could have similar scale of losses.

Commodities – Metals

Metals Trade Higher on Friday While Momentum Remains Uncertain

Gold                   $955.2                           +$13.5                              +1.43%
Gold futures closed the session slightly higher as US dollar weakness and economic recovery raised buying into the metal. Despite the movement, the commodity has remained relatively rangebound between 925 and 975 for the past month. Further weakness in the US dollar are expected to have a positive effect on gold prices, while rising equity markets cause assuade demand for the safety metal. Inflation concerns are expected to remain muted for some time and gold prices are not likely to see sharp swings higher as a result.

Silver                 $14.20                   +$0.267                               +1.92%
Silver moved higher by more than two percent as upbeat economic data including US home sales and European PMI helped lift sentiment for economic growth in the second half as the nations begin to exit recession. Growth would spur demand for silver, which is consumed more so than gold in a manufacturing environment and is thus more volatile to economic pressure. Overall, the metal has closed slightly lower this week by nearly four percent after bouncing paring some losses today. Weakness in Chinese demand for commodities may be playing a role while the Baltic Dry Index, a measure of shipping costs, also remains depressed. The lack of strength in the metal may be a sign that a further move towards July lows may be at hand.

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

European Stocks Rally on Upbeat Economic Indicators

Europe Session Key Developments

•    Crude Rises Above $74 Per Barrel
•    PMI Data Shows Sharp Improvement

European Markets rallied higher by more than two percent while the FTSE climbed to a new year-to-date high as economic indicators buoyed stocks. PMI data came in better-than-expected across the board, while German services and French manufacturing expanded in August. Meanwhile, the broader Euro-Zone indicators showed improvement as contraction narrowed. Also, the composite PMI posted at 50.0, signaling neither expansion nor contraction, its highest in 15 months. Adding to optimism, US existing home sales rose well above expectations and comments from Fed chief Bernanke also helped to lift sentiment. Despite the optimism, concern remains high over valuations going into the third quarter, and fear hovers over the relative safety of China. Possible sources comment that the fast-growing nation may curb lending growth to stymie inflation and bubble threats. One measure of trade and shipping costs, the Baltic Dry index, fell yesterday to the lowest level in approximately three months.

FTSE 100                      4,850.89                   +94.31               +1.98%
The UK market moved higher by nearly two percent, the smallest gain of the five majors, as lack of data in the region left the index to follow the continental trend. Several sectors rose more than two percent including those involved with infrastructure, commodities, and financials. British Airways saw the highest gain at 7.24% followed by greater than five percent moves in insurers Aviva and Legal & General. While the overall index move was not as high as that of France and Germany, the FTSE has now made a new 10-month high and closed at the highest level for 2009.

CAC 40                     3,615.81                   +110.49                 +3.15%
French stocks closed higher by more than three percent as Industrials, Financials and Utilities, rose nearly four percent while equities across the board closed higher. The move came amid PMI reports that showed services hardly contracted while manufacturing in the nation expanded for the first time since May 2008. Stocks seeing significant gains included a 6.23% gain in train maker Alstom, following a report that Beijing approved a $129 billion plan to build metro systems in 22 cities through 2015. Also seeing considerable moves were banks BNP Paribas and Credit Agricole, both up more than five percent.

DAX                         5,462.74                    +151.68             +2.86%
The German index rose nearly three percent, the second highest of the five majors, as PMI data showed expansion in the services sector, raising optimism for growth in the second half of 2009. Utilities climbed more than five percent as power company E.On gained 5.54% on a comment from Italy’s Eni SpA expressing interest in the firm and natural-gas distribution. Other major index movers included engineering firm Siemens and financial services firm Allianz, both up more than three percent.

IBEX 35                     11,161.00                   +263.50                 +2.46%
Stocks in Spain rallied more than two percent with oil gaining 3.23% while five other sectors up more than two percent. Sharp moves proved limited while six firms saw increases of more than three percent in stock prices, including airliner Iberia and banks Banco Bilbao and Banco Santander.

S&P/MIB                        17,731.00                    +502.09                  +2.35%
Italian equities rose more than two percent as financials and oil helped to boost stocks. Considerable gains were seen in insurer Assicurazioni, up 2.1%, and cement maker Buzzi Unicem, up 4.7%. Utility firm Enel also saw a move of 2.4% as utilities across Europe were lifted by better-than-expected PMI data. Italy’s main index now hovers close to a new year-to-date high.

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

Dow Looking To Test Yearly High As It Marches Toward 9,500

Near term, favor weakness in wave B of Y.  Fibonacci support begins below 8900.  It is possible that the top is in for stocks as wave Y has satisfied minimum requirements by exceeding the origin of wave X.  For now, favor weakness in order to correct at least a portion of the rally from 8087 (Fibonacci support begins at below 8900).

The Dow’s rally yesterday negated a potential downward channel and has the blue chip index looking to re-test the yearly high of 9,437. A break above leaves 9,500 as the next barrier.

The S&P is in the same position.  While a short term decline in order to correct the advance from 869 looks likely, the bear market rally may extend higher.  Extensions are at 1048 and 1159.

The S&P 500 is also developing a downward trending channel which could see it look to test the upper bound above 1,000 before a move lower.

The NASDAQ is in the same position as the other US equity indexes.  Additional strength should see a test of at least 2107 (61.8% extension of 1266-1880 / 1727).  2252-2341 is also a potential topping zone.

The NASDAQ continues to remain range bound between support at 1,950 and Fibo resistance. However, a break above the 61.8% extension could lead to a resumption of the bullish trend.

Stocks in Asia/Pacific Tumble Lower on Speculation PBoC Will Tighten Bank Lending

Asia Session Key Developments

• U.S. ‘Cash For Clunkers’ Incentive to End on August 24
• People’s Bank of China to Tighten Capital Requirements for Banks

The Asian stock markets tumbled lower on Friday as investors scaled back expectations for global growth, with the ASX tumbling nearly 2% on speculation China’s central bank will tighten bank lending in the coming months. As a result, the MSCI Asia Pacific index slipped 2.9% this week to mark the biggest decline since the week ending June 19, and fears of a slower global recovery may continue to drag on the equities market as investors soak-in profits following the recent rally. Moreover, U.S. officials announced that the ‘cash for clunkers’ incentive will come to an end on August 24, which weighted on the Japanese automakers, while shipping stocks slumped after the Baltic Dry Index, which gauges the cost of commodity shipments, slipped for the third consecutive day.

NKY 225                                           10,238.20

The Japanese stock market slumped on Friday, with the Nikkei shedding 145.21 points (1.40%) to end the trading session at 10,238.20 as all of the 10 subsectors retraced the advance from the previous day. Consumer goods led the decline after falling 1.84% on the day, while basic materials slipped 1.59%, led by a 4.61% in Mitsui Mining and Smelting Co. Moreover, Nissan and Honda Motors slumped 5.2% and 4.1%, respectively after U.S. officials announced the ‘cash for clunkers’ incentive will be ending on August 24, while shares of Mitsumi Electric fell 5.3% after JPMorgan Chase lowered the firms rating to ‘neutral’ from ‘overweight.’ At the same time, Nissan Chemical Industries rose 2.6% as Goldman Sachs added the stock to its ‘conviction buy list,’ while Kobe Steel advanced 2.3% on the day after a newspaper report said the company will begin to sell steel parts for nuclear electric plants.

HSI                                                         20,199.02

The Hang Seng pulled back on Friday, with the index falling 129.84 points (0.64%) to end at 20,199.02, driven by a 3.17% drop in telecommunications. Shares of China Mobile fell 3.4% after saying it will not be able to sustain its current level of profitability over the long run, while PCCE, the largest phone company in Hong Kong, tumbled 3.8% as first-half profits slipped lower from the previous year. At the same time, Bank of China and China Construction Bank Corp slid 0.8% and 0.9%, respectively after markets rumors emerged saying that the Chinese central bank will tighten capital requirements for banks.

ASX 200                                            4,290.60

The ASX 200 plunged 86.90 points (1.99%) to end the session at 4,290.60, with 9 of the 10 components falling lower as investors speculate the People’s Bank of China to tighten bank lending in the coming months. Telecommunications slumped 4.56% to lead the decline, with shares of Telstra tumbling 4.9% after Future Fund sold its stake in the telephone company, while financials slipped 2.55%, led by an8.16% drop in Macquarie Office Trust after Merrill Lynch lowered its rating on the stock. Moreover, Rio Tinto shed 3.0% as market participants feared commodity exports to China will taper off in the second-half of the year, while Insurance Australia Group tumbled 6.6% as its earnings report failed to meet market expectations.

US Stocks Extend Gains After AIG Vows Repayment Of Government Loans

US Session Key Developments

• AIG Says It Will Repay TARP Money
• Conference Board’s Economic Outlook Increases
• Manufacturing In Philadelphia Grows Unexpectedly

US equities rose for the third consecutive day as American International Group Inc. said it expects to repay the government’s TARP money and economic indicators strengthened the viability of an emerging economic recovery.  The Conference Board’s gauge of economic outlook advanced 0.6%, the largest incremental increase since 2004.  Furthermore, Manufacturing in the Philadelphia region, a major hub of American manufacturing unexpectedly expanded in August for the first time in over a year.  Treasury Secretary Geinthner noted improving conditions of the job market and housing industry, suggesting that the economy was at the onset of recovery.

DOW 30   9350.05               +70.89                   +0.76%

Industrials and Financial led sector gains in the DOW advancing 1.54% and 1.50% respectively.

SPX 500   1007.37              +10.91                   +1.09%

American International Group rallied a whopping 21% leading gains in the S&P 500 after CEO Robert Benmosche said the company expects to repay government TARP money.  The statement made by AIG bolstered positive sentiment about the financial and insurance sectors, after both industries comprised the nucleus of economic calamity during the crisis late last year.  Prudential Financial Inc, rose 4.3% as broad insurance companies gained and an analyst at FBR Capital Markets advised to buy shares.  The VIX Index, a measure of fear in market sentiment, tumbled from opening and closed to 1-week lows at 25.09.

NAS 100   1989.22              +19.98                   +1.01%

Google Inc rose 3.7% after Goldman Sachs added the tech giant to its “Conviction Buy” list.

Written by Kevin Yip, CFDTrading Analyst            For questions and comments email kyip@fxcm.com

6 Month Triangle in Gold

Since the end of February, gold has traded in a contracting range and taken the form of a triangle.  The immediate barriers are 927.60 on the downside and 974.30 on the upside.  However, the critical levels are 907.60 on the downside and 993.60 on the upside.  A break of either of these levels would warrant a breakout strategy.  A break higher targets the all-time high set in March 2008 at 1034.  A break lower could result in a test of the October 2008 low at 681.  Although the break may not occur for a number of weeks, this is a chart worth keeping an eye on.

Dow Weakness Still Favored With Test of 9,000 Likely

Near term, favor weakness in wave B of Y.  Fibonacci support begins below 8900.  It is possible that the top is in for stocks as wave Y has satisfied minimum requirements by exceeding the origin of wave X.  For now, favor weakness in order to correct at least a portion of the rally from 8087 (Fibonacci support begins at below 8900).

The Dow could see resistance from the upper bound of a developing short-term downward trending channel. The blue chip index has been under pressure after forming a double top. The failure to break above the yearly high could lead to an extended move lower with potential to 8920-38.2% Fibo of 8,093-9,437.

The S&P is in the same position.  While a short term decline in order to correct the advance from 869 looks likely, the bear market rally may extend higher.  Extensions are at 1048 and 1159.

The S&P 500 is also developing a downward trending channel which could see it look to test the upper bound above 1,000 before a move lower.

The NASDAQ is in the same position as the other US equity indexes.  Additional strength should see a test of at least 2107 (61.8% extension of 1266-1880 / 1727).  2252-2341 is also a potential topping zone.

The NASDAQ continues to remain range bound between support at 1,950 and Fibo resistance. However, a break above the 61.8% extension could lead to a resumption of the bullish trend.

Asian Equities Rebound Following the Rise in Global Commodities

Asia Session Key Developments

• Consumer Prices in Hong Kong Tumble Lower
• Japanese Convenience Store Sales Slump in July

Stocks in Asia/Pacific bounced back on Thursday, with the Hang Seng advancing 1.88% on the back of higher commodity prices paired with speculation for a rise in corporate earnings. Meanwhile, a government report showed consumer price in Hong Kong fell at an annual rate of 1.5% in July to mark the biggest decline in give years, and price pressures are likely to remain subdued throughout the second-half of the year as households and businesses continue to cut back on consumption. At the same time, convenience store sales in Japan plunged 7.5% in July from the previous year, and fading demands for employment paired with tightening credit conditions may continue to hamper the outlook for domestic demands as policymakers see a risk for a slower recovery.

NKY 225                                           10,383.41

The Nikkei 225 advance 179.41 points (1.76%) on Thursday to end the session at 10,383.41, with all 10 components pushing higher. The rally was led by a 2.58% gain in financials, with shares of Sumitomo Mitsui Financial Group rising 2.80% after Morgan Stanley upgraded the stock to ‘overweight,’ while Hino Motors added 5.11% after Nikko Citigroup raised the firms rating to ‘hold’ from ‘sell.’ At the same time, Sumitomo Metal Mining Co advanced 3.80% after taking a 16.5% stake in Nickel Asia Corp, while Toshiba gained 4.95% on the day after winning a bid for a solar power generator from Chubu Electric Power Co.

HSI                                                         20,328.86

Stocks in Hong Kong bounced back on Thursday, with the benchmark index rallying 374.63 points (1.88%) to 20,328.86 as all of the 9 subcomponents tipped higher. Consumer goods gained 4.31% to lead the advance, with basic materials adding 3.57% on the back of higher commodity prices. Cnooc, the largest offshore oil producer in China, gained 3.19% as oil prices climbed to $72/bbl, while Bank of Communications Ltd added 1.32% after second-quarter profits topped market expectations. Moreover, China Petroleum & Chemical Corp rose 3.45% on speculation profits may have increased seven-folds from the first-quarter, while shares of PetroChina rallied 2.72% as investors anticipate a 28% rise in profits.

ASX 200                                            4,377.50

Stocks in Australia ended a three-day losing steak, with the ASX adding 3.70% (0.08%) to end the day at 4,377.50, led by a 2.87% in oil & gas. Shares of Woodside Petroleum surged 7.3% after UBS raised the firms rating to ‘buy,’ while Qantas Airways slumped 1.9% after UBS and Merrill Lynch downgraded the firm to ‘neutral’ from ‘buy.’ At the same time, Macquarie Infrastructure Group tumbled 6.2% after announcing plans to split the firm into two units, while Amcor Ltd jumped 8.9% after selling A1.2B in shares to purchase Rio Tinto’s Alcan packaging division.

Notable Asian Session Event Risk / Economic Releases

European Stocks Carving Out Major Tops, Position for Losses

Weekly Strategy

FTSE 100

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 4751, has been reached and is where the rally from 4096 is equal to 61.8% of the 3461-4521 rally.  The next level is 5156, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The FTSE is forming a bearish rising wedge reversal pattern. A bearish engulfing candlestick pattern has been put in place at resistance, with additional confirmation seen in negative divergence on the RSI oscillator. Initial support lines up at 4476.27, the 23.6% Fibonacci retracement level.

DAX

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 5506, has nearly been reached and is where the rally from 4524 is equal to 61.8% of the 3589-5176 rally.  The next level is 6113, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The DAX 30 has turned lower ahead of the 5500 level, with initial support found at the 14.6% Fibonacci retracement level (5195.96). A break lower will target the 23.6% Fib at 5029.19.

CAC 40

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 3535, has been reached and is where the rally from 2958 is equal to 61.8% of the 2466-3400 rally.  The next level is 3892, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

Positioning for the French benchmark index looks very similar to that of the FTSE: a rising wedge bearish reversal chart formation is being confirmed by negative divergence on the RSI oscillator. Initial support has been marked at 3402.08, the 23.6% Fibonacci retracement, with a break lower targeting the 38.4% level at 3317.18.

IBEX 35

Long-Term Technical Outlook

There are 2 levels that most likely produce a top.  The first level, 1124, has nearly been reached and is where the rally from 925 is equal to 61.8% of the 670-993 rally.  The next level is 1247, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

Spanish shares have slipped below support at the 23.6% Fibonacci retracement level (1069.63) and now aim to challenge the 38.2% level at 1041.93. Beyond that, the bears will face a formidable hurdle at the intersection of the 50% Fib and a rising trend line established from the swing lows in March.

FTSE MIB

Long-Term Technical Outlook

There are 2 levels that most likely produce a top and neither has been reached.  The first level, 22798, is where the rally from 17626 is equal to 61.8% of the 12332-20702 rally.  The next level is 25996, which is where the 2 bull legs would be equal.

Short-Term Technical Outlook

The MIB index has shown a bearish engulfing candlestick setup ahead of the 22000 level and turned downward, with prices now targeting support at the 14.6% Fibonacci retracement level (20570.41). A break below that aims at the meeting place of the 23.6% mark and a rising trend line from the March swing low.

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