January 2010

Oil Closes its Worst Monthly Decline Since December 2008 as Risk Appetite Retreats, the Dollar Rallies

North American Commodity Update

Commodities – Energy

Oil Closes its Worst Monthly Decline Since December 2008 as Risk Appetite Retreats, the Dollar Rallies

Crude Oil (LS NYMEX) -  $72.74  //  -$0.90 //  -1.22%

It is has been a bearish open to the year for crude. The commodity suffered its worst monthly decline since December of 2008 with a 12 percent tumble from the more than one-year high set earlier in the month. From a technical perspective, this swing has come upon its next make-or break level. In the past seven months, $72.50 has proven a difficult level to overcome and forge ahead with progress. Adding to its influence, this time around there the level happens to coincide with the general trend of lows that has defined the market’s advance since May of last year. Looking ahead to next week and month, direction may not be definitive but the potential for volatility is. There are major fundamental drivers behind the market that could quickly put crude back on its paces. Perhaps the most direct threat to the energy market’s health is risk appetite. In the past two weeks, speculative capital has reversed its flow in equities, commodities, currencies and carry positions. A speculative asset in its own right, oil is looking to the Dow and dollar for direction. The stock market offers a more objective bearing on risk appetite as investors buy when confidence rises and sell when the outlook for capital gains diminishes. The currency plays a duel role as both a funding currency and the primary pricing instrument for the commodity. The bearish bias on capital markets is in place; now we need a catalyst and momentum.

In the meantime, supply-and-demand factors will continue to develop in the background. The market initially responded as expected to the better-than-expected 4Q US GDP number this morning; but the growth reading would quickly lose its sway over price action after the data was absorbed. At face value, a 5.7 percent annualized pace of expansion and 2.0 percent growth in personal consumption both beat expectations. However, the former draws its comparison to the deep recession of a year ago and the consumer spending number is far from setting a pace for a boom period. Looking ahead to next week, the balance of supply and demand will be altered directly by manufacturing reports from the US, Euro Zone and UK among others. Moreover, though it may not have a direct link to fuel demand, the US non-farm payroll report will nevertheless exact a significant impact on oil price action.

Commodities – Metals

Gold Attempting to Hold back the Dollar’s Tide

Spot Gold  -  $1,079.90   //  -$7.22 //  -0.66%

While the markets were suffering from unfavorable risk trends, gold was able to hold back a critical break this week. Investor sentiment continued to flag, but momentum behind profit taking and position unwinding would notably temper its pace. This is not a sign that risk appetite will be suddenly revived next week; but it does offer bulls an opportunity to wrestle back some control over the markets. Evaluating the drivers of the past week, the US dollar will remain the primary fundamental catalyst for bearish gold bugs. While gold may have held on to support, EURUSD has forged fresh six-month lows and finds few prominent technical floors nearby. Should the dollar maintain its momentum, it is likely only a matter of time before this dollar-hedge follows suit. Along the same lines, the backdrop of risk appetite will be gauged for its influence on this speculative asset. However, should the retracement in risk appetite stall out around current levels, long-term investors and central banks who are looking to diversify away from currencies or volatile assets may treat gold as if it is trading at a discount and taking the opportunity to sop up large positions when liquidity is fluid. The commodity’s value as an inflation-hedge is another sleeper factor. Price pressures are already pushing dangerous levels in emerging markets and the developed market is just starting to feel the bite once again. When conditions return to the point that interest rate hikes are a global option, expect this fundamental driver to play a bigger role in price action.

Spot Silver  -  $16.14 //  -$0.11 //  -0.68%

Spot silver fell for the seventh day in eight to close out this week. Testing $16 per ounce support, the commodity is trading at near three-month lows and momentum is still in the bears’ corner. Risk aversion has stood as the primary driver over the past 24 hours just as surely as it has guided the metal over the past week. However, it is interesting to note that while silver has made bearish progress, the Dow Jones Industrial Average (our benchmark risk appetite) has more or less stabilized. This may denote a greater correlation to the US dollar rather than sentiment itself – a relationship that would hold up far more distinctly if risk trends would further align themselves to the bearings of the greenback.

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Written by John Kicklighter, Strategist
Questions or Comments about this article? Send them to jkicklighter@dailyfx.com

US Equities Close Month In Red Despite Strong Economic Growth

U.S. Session Key Developments

•    US Economy Grows At Fastest Pace In Six Years
•    Dollar Index At Highest Level In Five Months
•    Technology Stocks Drag Down Broader Market

Stocks ended the month of January in the red as data that showed that US Gross Domestic Product grew at a 5.7 percent rate was unable to overcome disappointing results from technology companies.  The 3.7 percent January decline in the broad-base S&P 500 Index is the first monthly decline since October and does not bode well for equities for the remainder of the year.  Since 1950 there have only been 5 years in which the index decreased in January yet finished the year in positive territory.  A notable exception to the “January barometer” is last year, when the index dropped 8.6 percent in January yet managed to finish the year up 23 percent.  Markets had started today’s session in positive territory, trading a full percent higher, after the Commerce Department reported that the economy grew at the fastest pace in six years.  The University of Michigan Confidence Survey also surprised to the upside as the actual figure of 74.4 exceeded analysts’ average estimate of 73.0.  However, stocks were unable to maintain their momentum as lower sales forecasts from some large-cap tech stocks pushed markets into negative territory.  The better than expected GDP report renewed speculation that interest rates would be hiked sooner than previously expected, which sent the dollar index to its highest level in five months.  Dollar strength weighed on commodities, which finished the day modestly lower.  Crude was down 1.28% to 72.70 and gold finished the day down 0.17% to 1,081.80.  Looking ahead to next week, investors will be anxiously awaiting Friday’s Non-Farm Payrolls figure, which has traditionally been the biggest market mover of the month.  We will see on Friday if economic growth can translate into new job creation, which the Obama administration has made its top priority.

DJIA 30                      10067.33                     -53.13                          -0.52%
The Dow Jones Industrial Average gave up early gains in the last two hours of trading to finish in the red for the third day this week.  The index was dragged down by tech stocks as well as Boeing Co., which closed down 3.13 percent after another manufacturer, Honeywell, set a first-quarter profit target that fell short of analysts’ expectations.

S&P 500                      1073.87                        -10.66                          -0.98%
The broad-base S&P 500 finished January at its lowest level in three months as all sectors finished today’s session lower.  Besides technology, the worst two performing sectors were Basic Materials and Energy.  The two sectors were down 2.01 percent and 1.27 percent as commodities were weaker this week amid dollar strength.  Oil in particular, had its worst monthly decline since December 2008 this month.

NASDAQ                     2147.35                        -31.65                           -1.45%
The tech-heavy Nasdaq Composite was the worst performer of the three major U.S. Indices as tech stocks dragged the broader market lower.  Investors sold off shares of technology leaders such as Apple Inc, Microsoft Corp and International Business Machines.  Their stock prices were lower by 3.63 percent, 3.36 percent, and 1.10 percent respectively.  The drop in prices was spurred by Microsoft announcing that its enterprise businesses have not yet recovered from the worst recession since World War II.  Still, the company posted a second-quarter net income that beat analysts’ estimates by 15 cents off of stronger than anticipated sales of its newly released Windows 7 operating system.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com

European Equities Close Higher, Trim First Monthly Loss Since October

Europe Session Key Developments

•    Euro-Zone Unemployment Rises to Ten Percent, U.S. GDP Beats Expectations
•    Commodities Slide, Dollar Continues to Gain Against European Counterparts

European stocks posted their biggest collective gains since December 21 after Euro-Zone unemployment rose less than expected and the U.S. economy posted its largest quarterly gain in six years.  The positive data helped revive risk appetite for investors and pushed European shares higher, trimming their first monthly loss since October.  The biggest driver of market sentiment during Europe’s afternoon trading hours was the U.S. GDP reading, which showed a 5.7 percent expansion for the world’s largest economy in the fourth quarter.  The data showed an improvement in the U.S. manufacturing sector and a 2 percent rise in consumer spending.  The GDP figure also pushed the U.S. Dollar higher against its European counterparts as the U.S. Dollar Index rose for a fourth consecutive day.  The Euro continued its bearish trend as concerns over Greece’s debt problems weighed on the regional currency.  Looking ahead, a plethora of economic data will likely drive markets and price action next week including the release of Euro-Zone PMI data on Monday and German retail sales on Tuesday.

FTSE 100                      5188.52                   +42.78                    +0.83%
British stocks rallied in the final day of trading this week after strong fourth-quarter GDP data from the U.S. and a rise in U.K. housing prices in January.  Three stocks gained for each that fell today on the FTSE Index, which was led by 1.4 percent gains in technology and financial stocks.  Bank stocks were led by HSBC, which added 2.6 percent, and Barclays, which gained just over 2 percent on the day.

CAC 40                           3739.46                   +50.67                    +1.37%
Trading in Paris today resulted in over a 1 percent gain, led by Industrials and Basic Materials which added over 2 percent each on the trading day.  The Industrials sector was led by a 4 percent gain in Saint Gobain and a 3.4 percent gain in Vallourec, the world’s second largest maker of steel tubes for oil and gas production.  Basic Materials stocks were led by a 2 percent gain in Air Liquide after the gas producer won authorization to market its products to health providers.

DAX                                 5608.79                     +68.46                  +1.24%
German stocks gained over 1 percent today as nine of the ten DAX sectors closed higher on the day.  The index was led by Consumer Goods and Technology shares which each rallied at least 2.8 percent each.  BMW led automakers higher after announcing that it expects to increase 2010 vehicle sales in the U.S., China, and Germany.  Daimler gained over 3 percent today after HSBC Holdings raised the stock to “neutral.”  Looking ahead, there will be a number of economic indicators released for Germany including retail sales on Tuesday and PMI services on Wednesday.

IBEX 35                       10947.70                   +118.40                 +1.09%
After posting the biggest loss among Europe’s major indexes in the last two days, the IBEX added just over 1 percent during today’s session.  The index was led by a 1.9 percent gain in financial shares and a 1.8 percent rise in oil & gas companies.  Gamesa was the biggest winner on the day, adding over 3.3 percent during the session.

FTSE MIB                     21896.29                  +293.16                 +1.36%
The Italian benchmark index rallied over 1 percent today despite an unexpected rise in the nation’s unemployment rate to 8.5 percent.  Stocks in Milan snapped their two-day losing streak and trimmed their weekly loss to 3 percent.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

Stocks in Asia/Pacific End the Week Lower on Earnings Concern, Weaker Commodity Prices

Asia Session Key Developments

• Japan’s Jobless Rate Slips to 5.1%
• Japan Housing Starts Weaken Less Than Expect
• Australia’s Bank Lending Rises the Most in 11 Months

Stocks in Asia/Pacific dove lower on Friday following the previous day’s advance, with shares in the three major indices falling lower on the back of weaker commodity prices paired with diminishing confidence in the global recovery. In Australia, private sector credit climbed 0.3% in December after gaining 0.1% the month prior, while the annualized rate increased 1.5% from the previous year, marking the fastest pace of growth in eleven months. Meanwhile, Japan’s jobless rate unexpectedly slipped to 5.1% in December from 5.2% in the previous month despite expectations for a rise to 5.3%, while housing starts weakened 15.7% during the same period versus forecasts for an 18.8% decline.

Nikkei 225                          10,198.04
The Japanese equity markets tumbled on Friday, with the Nikkei 225 declining 216.25 points (2.08%) and closing at 10,198.04. All ten components pushed lower on the day, with technology leading the way, slipping 4.12%, which was followed by a 2.76% decline in consumer services. Shares of Advantest sank 10.24% after the company stated that its net loss widened 19% to 12.8 billion yen in the nine months ended December 31^st from the previous year, while Fuji Electric Holdings leapt 8.43% amid the company forecasting its net loss will narrow to 9 billion yen for the year ending March 31^st from its previous forecast of 17 billion yen. At the same time, Mitsubishi Logistics lost 2.46% amid the Nikkei newspaper reporting that the company will spend approximately 12.5 billion yen to redevelop its Tokyo headquarters, while Fanuc added 1.76% after raising its full-year net income forecast by 64% and said demands have recovered “significantly.”
Hang Seng                        20,121.99

Stocks in Hong Kong halted the previous day’s advance and weakened for third week, leading the benchmark equity index to shed 234.38 points (1.15%) and close at 20,121.99. Seven out of the nine components pushed lower on the day, with oil & gas losing 2.38%, while consumer goods added 10.22% to taper the decline. Shares of Aluminum Corporation of China lost 2.85% on weaker commodity prices, while the Bank of East Asia slumped 2.02% amid the bank completing the acquisition of a 75% stake in a joint venture with Industrial & Commercial Bank of China for HK$372.15 million. Moreover, New World Development dropped 1.23% as the company announced it will offer 32 larger apartments at its Masterpiece project in Hong Kong for as much as HK$140 million each, while Li & Fung jumped 10.22% after reaching an outsource deal with Wal-Mart that could potentially generate $2B during its first year.

S&P/ASX 200 Index           4,569.60

Stocks in the Pacific-region traded to the downside on Friday on the back of lower commodity prices, leading the S&P/ASX 200 to lose 103.70 points (2.22%) and close at 4,569.60. All ten components dived on the day and was led by a 3.45% decline in basic materials, while industrials gave back 2.30%. Shares of BHP Billiton slumped 3.19% on the back of lower commodity prices, while Newcrest Mining, Australia’s largest gold producer pushed 1.87% lower amid gold futures for April delivery slipping to 1,084.80 an ounce. At the same time, Commonwealth Bank of Australia, the nation’s largest lender by market value dropped 3.39% as the bank injected an additional A$400 million into Bank of Western Australia, while Woolworths, Australia’s biggest retailer shed 1.26% subsequent to the company announcing that it will cut the shelf price of 3,500 grocery items.

Notable Asian Session Event Risk / Economic Releases

U.S. Equities Trade to Lowest Level In Nearly Three Months

U.S. Session Key Developments

•    Qualcomm Lowers Sales Forecast on “Subdued” Economic Recovery
•    Initial Jobless Claims Higher Than Anticipated
•    Senate Votes to Reappoint Bernanke to Second Term

Mixed economic data, renewed concern about Greece, and a stiff economic warning from Qualcomm sent the broad-base S&P 500 Index to its lowest level in almost three months.  These concerns overcame a flood of upbeat earnings announcements and a State of the Union Address that focused on bipartisanship and fiscal responsibility.  The economic slate featured durable goods orders, which rose 0.3 percent in December while economists surveyed anticipated a rise of 2.0 percent.  In addition, more Americans than expected filed claims for unemployment benefits last week.  The mixed data was emphasized when Qualcomm, the biggest mobile-phone chip maker, lowered its sales forecast and their CEO went on to blame the “subdued” economic recovery.  With the substance of the economic recovery being questioned and renewed concern that Greece will require a European Union bailout, the greenback was primed for a positive day, particularly against the single currency.  The Euro extended its decline to 1.3968, down 0.38 percent and the worst performer of the major currencies.  The dollar’s strength did not translate to commodities as gold and crude both finished the session marginally higher.  Gold was up 0.13 percent to $1,085.50 and crude was 0.30 percent higher to 73.89.  After the market closed, the Senate finally voted to reappoint Ben Bernanke for a second four-year term as chairman of the Federal Reserve.  The news should bode well for the markets, which reacted violently to uncertainty about his reappointment last week.  In addition, tomorrow features a full economic slate headlined by US fourth-quarter GDP and the University of Michigan Confidence survey.

DJIA 30                     10,120.46                   -115.70                       -1.13%
The Dow Jones Industrial Average fell as four stocks fell for each that gained.  Large-cap tech issues were the worst performers of the group, led by IBM and Hewlett-Packard, which were down 2.04 percent and 3.36 percent respectively.  Proctor & Gamble Co. was one of the lone advancers after the company reported second-quarter earnings that beat analysts’ estimates by 12 percent.

S&P 500                     1,084.53                     -12.97                          -1.18%
The broad-base S&P 500 closed at its lowest level in almost three months as every sector was lower on the day.  The Basic Materials Sector was one of the worst performers, down 1.99 percent as all 26 components were in the red because of weakness in commodities over the week.  Financials were among the best performers after President Obama promised to restrict risk taking and said he wasn’t interested in “punishing” banks.

NASDAQ                    2179.00                     -42.41                           -1.91%
The tech-heavy Nasdaq Composite was the worst performer of the three major U.S. Indices as tech stocks dragged the broader market lower.  Qualcomm slid 14 percent, dragging the Nasdaq lower, as the world’s biggest maker of mobile-phone chips lowered its 2010 sales outlook.  Apple gave up its gains from yesterday and then some as some experts were dissappointed with some of the iPad’s features.  Netflix soared 24 percent as the company reported better than expected earnings and added 12 million subscribers.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com

European Equities Decline Broadly for Third Day This Week

Europe Session Key Developments

•    Greek Debt Concerns Continue to Weigh on European Equities
•    European Confidence Indicators Generally Improve, German Unemployment Holds at 8.2%
•    Commodities Continue Slide, Dollar Gains Against European Currencies

Generally better-than-expected confidence readings for the Euro-Zone failed to buoy the region’s stock markets, which fell for a sixth time in the last seven trading days.  Losses took place across all sectors and pushed the broad Dow Jones STOXX 600 Index to its lowest close since December 10.  In the early going, European shares appeared to be headed higher after the European Commission released its latest confidence readings.  The data showed that the index of executive and consumer sentiment improved for a tenth month to 95.7, beating economists’ 92.3 expectation.  Shares failed to hold, however, as investor uncertainty returned due to the Greece debt problems and weaker-than-expected durable goods orders in the U.S.  Greek Prime Minister George Papandreou claimed today that the nation never asked for financial assistance from other EU countries and had no need for such aid; however, the country’s bonds and credit-default swaps suggest investors do not believe the rhetoric.  Greek  bonds have declined over 10 percent in the last three months, while credit-default swaps tied to the country are trading at similar levels to Dubai in December.  Furthering the decline in European stocks was an announcement from the U.S. that durable goods orders rose 0.3% in December, far short of the 2.0 percent expected for the month.  Overall, risk aversion was evident across the globe, as investors sold off stocks and commodity holdings in favor of bonds and U.S. dollars.  The greenback gained against both the Euro and British Pound during the session.

FTSE 100                      5145.74                   -71.73                    -1.37%
British stocks fell for the sixth time in seven days as the Basic Materials and Health Care sectors each declined over 2.6 percent.  BHP Billiton and Rio Tinto each fell over 2 percent as commodity prices continued to show weakness across the board.  Health care shares were led lower by AstraZeneca, after the drugmaker announced that its fourth-quarter earnings per share fell short of analyst estimates.  Overall, the FTSE has dropped nearly 5 percent this year due to a revival of investor uncertainty regarding global growth.

CAC 40                           3688.79                   -71.01                    -1.89%
Trading in Paris today resulted in a near 2 percent decline as falling commodity prices hurt the Basic Materials and Oil & Gas companies.  Only six of the forty CAC stocks avoided the bearish trading that pushed every French sector into the red.  Commodity companies were the worst performers on the index due to macro concerns regarding curbed lending in China and a potential slowdown in growth as a result.  Steel producer ArcelorMittal dropped over 3 percent during trading and Vallourec S.A. fell nearly 3 percent.

DAX                                 5540.33                   -102.87                -1.82%
German stocks declined for a second session on weakness in Telecommunications and Industrials.  The DAX fell to its lowest level in nearly three months as nine stocks fell for each that gained on the index.  Siemens AG, the largest engineering firm in Europe, fell about 3 percent to lead the decline in industrial shares.  The lone telecom stock on the index, Deutsche Telekom, fell 2.6 percent.  The best performer on the index was Infineon, which gained over 2 percent after investors forced the chipmaker’s chairman-designate to guarantee an early exit from the post.

IBEX 35                       10829.30                   -212.90                 -1.93%
The Spanish index posted the biggest loss of the major European indices for a second consecutive day as information technology firm Indra Sistemas fell over 5 percent.  Only three of the thirty-two IBEX stocks managed to close above water today as investors remain concerned that the pace of Spain’s recovery is slowing.  Spain is likely headed for a second year of economic contraction and remains weighed down by debt problems not unlike those in Greece.  Spanish Finance Minster Elena Salgado announced today her intention to cut the budget deficit by two thirds by 2013.

FTSE MIB                     21603.13                  -394.46                 -1.79%
The Italian benchmark index fell over 1.7 percent today to mark its third losing day this week.  Luxury goods maker Tod’s fell over 8 percent today after posting gains in the prior three trading sessions this week.  Ansaldo STS also experienced its first losing day this week, declining over 2 percent after Intermonte Sim downgraded the shares to “outperform” from “buy”.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

Stocks in Asia/Pacific Halt Eight Day Slump on U.S. President Obama’s Pledge, Rising Commodity Prices

Asia Session Key Developments

• Japan’s Large Retailers’ Sales Decline Less-Than-Expected
• New Zealand’s Money Supply M3 Pushes 1.1% Lower

Stocks in Asia/Pacific advanced for the first time in nine days amid U.S. President Barack Obama calling on the Congress to pass a package of tax cuts and spending to stimulate economic growth. In Japan, large retailers’ sales for the month of December slid 4.6% after contracting a revised 9.7% in the previous month amid expectations for a 7.3% decline, while New Zealand’s M3 money supply dropped at an annual pace of 1.1% in December subsequent to the 1.8% decline seen in the previous month. Looking ahead at the economic docket, Japan’s jobless rate is on tap for 23:30 GMT, with economists’ expectations of 5.3%.

Nikkei 225                          10,414.29
The Japanese equity markets advanced on Thursday, halting a four-day losing streak, with the Nikkei 225 climbing 162.21 points (1.58%) to closing at 10,414.29. Nine out of the ten components rose on the day, with consumer services surging 3.0%, while utilities dropped 0.63%. Shares of Yahoo Japan Corp surged 7.81% after the firm said its full-year net income could increase up to 10.4% from the previous year, while Honda Motor, Japan’s second-largest automaker added 3.29% amid the Nikkei newspaper reporting that the automaker is likely to post an operating profit of more than 300 billion yen for the year ending in March, compared to its 190 billion yen forecast. At the same time, Tokyo Electron advanced 3.48% as the firm cut its full-year net loss projection to 17B yen for the fiscal year ending in March, while Toyota Motor tumbled 3.91% subsequent to the company announcing that it will expand its vehicle recall to Europe.
Hang Seng                        20,356.37

Stocks in Hong Kong halted the previous day’s decline on Thursday, leading the benchmark equity index to add 323.30 points (1.61%) and close at 20,356.37. All of the nine components pushed ahead on the day, with consumers services rising 3.35%, which was followed by a 3.13% in technology. Shares of CNOOC jumped 4.17% on the back of higher commodity prices, while Hang Lung Properties advanced 3.01% after Macquarie Group raised its rating on the stop to “outperform” from “neutral.” At the same time, PetroChina rose 0.45% as CNPC, a unit of the country’s largest energy company reported that it may spend as much as HK$10 billion on gas projects this year, while China Overseas Land & Investment climbed 0.14% as the firm won a bid for a plot designated 2009-B-123 in Suzhou National New & Hi-tech Industrial Development Zone for RMB 690 million.

S&P/ASX 200 Index           4,673.30

Stocks in the Pacific-region soared on Thursday on the back of higher commodity prices, leading the S&P/ASX 200 to gain 28.70 points (0.62%) and close at 4,673.30. Five out of the ten components rallied on the day, with technology climbing 1.92%, while consumer services slid 0.91% to taper the advance. Shares of Commonwealth Bank of Australia, the nation’s largest lender, gained 0.86% as the bank is in talks to sell part of its stake in a life-insurance venture with Bank of Communications, while Qantas Airways added 1.06% as the airline company’s budget unit Jetstar announced that it has secured agreements with International Aero Engines worth as much as $3.5 billion to have the V2500 SelectOne engine power a fleet of additional Airbus A320 aircraft. At the same time, Woolworths, Australia’s largest retailer plunged 2.28% as UBS AG slashed the company’s price forecast from A$33.50 to A$32.50, while Westfield Group, the world’s largest owner of shopping malls soared 4.10% as JP Morgan Securities upgraded the company’s stock from “neutral” to “overweight.”

Notable Asian Session Event Risk / Economic Releases

U.S. Equities Close Higher as FOMC Keeps Rate Unchanged

U.S. Session Key Developments

•    New Home Sales Unexpectedly Declines
•    FOMC Leaves Fed Funds Rate Unchanged
•    Commodities Suffer Worst Decline in Two Months

U.S. stocks gained in the last hour of trading today, with all three major US Indices closing higher after trading in the red for most of the day.  Stocks rose after the FOMC decided to keep the federal funds rate near zero and reiterated its plans to wind down its agency mortgage-backed securities purchases by the end of the first quarter.  The Fed continued to be optimistic about the economy, saying “economic activity has continued to strengthen and that the deterioration in the labor market is abating.”  Perhaps the most telling information from the statement was Kansas City Fed President Thomas Hoenig’s dissent from the committee’s statement promising to keep rates low.  Major stock indexes had fallen before the Fed released its statement as US new-home sales unexpectedly declined 7.6 percent from November to December and global equities fell for a sixth day.  The greenback was higher throughout the day as investors sought safety in US Treasury bills.  The dollar strength helped push commodities lower throughout the session.  The CRB Commodity Index registered a 1.9 percent loss, its worst single-session percentage slide in two months.  Pit trading in crude closed with a 1.4 percent loss at $73.64, and had been as low as $72.65, a one-month low.  Precious metals were no better this session with gold sinking 1.3 percent to close at $1084.50 and silver also lower.  Among the event risk on the economic slate tomorrow is Initial Jobless Claims for the week ending January 23^rd.  Better than expected data would confirm today’s Fed statement that the labor market is improving.  Markets will also continue to look for news regarding the confirmation proceedings of Fed Chairman Ben Bernanke.  With Bernanke’s first term ending this Sunday and a Senate vote yet to happen, investors have reacted negatively to the uncertainty of who will be leading the world’s strongest economy.

DJIA 30                      10,236.16                   +41.87                    +0.41%
The Dow Jones Industrial Average ended the session higher after spending most of the day in the red.  Boeing Co. was the best performer of the thirty companies, adding 7.3 percent on the day.  The company reported fourth-quarter profit that beat the average analyst estimate by 31 percent and registered a 42 percent increase in sales.  The worst performer was Caterpillar Inc., which slid 4.3 percent after declaring that fourth-quarter earnings fell 65 percent.

S&P 500                        1,097.50                     +5.33                    +0.49%
The broader S&P 500 was pushed higher by financial stocks as the sector added 2.34 percent in the session.  The sector gained as concerns over financial regulation eased and the FOMC reassured investors that its unprecedented easy money policies will continue.  The worst performing sectors were materials and energy, which lost 0.8 percent and 0.6 percent respectively.  The losses came amid renewed weakness in commodities.

NASDAQ                       2,221.41                    +17.68                 +0.80%
The tech-heavy Nasdaq Composite was the best performer of the major US Indices.  The index was pushed higher by Apple, which gained 0.99 percent amid a favorable reaction to the company’s newly launched iPad, as well as pricing for the product.  In addition, Gilead Sciences added 7.1 percent after reporting fourth-quarter profit that beat the average analyst estimate by 10 percent.

Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com

European Equities Falter to Lowest Close Since December

Europe Session Key Developments

•    Financial Sectors Across Europe Under Fire on Regulation Concerns
•    German Consumer Prices Fall More Than Expected in January
•    Commodities Continue Slide, Dollar Gains Against European Currencies

European stocks retreated for a second session this week, falling to levels not seen since mid-December.  Although there was no major event risk to depress sentiment, prior concerns regarding government regulations and upcoming central bank decisions drove stocks lower.  Just last week, U.S. President Barack Obama spooked investors by proposing new regulations on U.S. banks and Chinese leaders ordered some of their own big banks to curb lending for the rest of the month.  Today, French President Nicolas Sarkozy came out in support of Obama’s banking regulations and suggested further discussion by the G-20 regarding the proposal.  Overall, the government speak resulted in marketplace uncertainty and drove “riskier” assets such as stocks and commodities lower.  On the currencies front, the Euro and British Pound both fell against the greenback as the U.S. Dollar Index rose to its highest level since September.

FTSE 100                      5217.47                   -59.38               -1.13%
British stocks fell for the fifth time in six days, as the Financials sector and Commodities sector declined over 1.7 percent each.  The overall decline in British banking stocks could be largely attributed to investor fears that future regulatory measures will reduce industry profits.  On the commodities front, mining stocks and commodity producers continued their declines from last week due to falling prices for energy products and precious metals.  Tullow Oil dropped over 4 percent today after raising nearly 1 billion pounds in a share sale to fund exploration in Africa.

CAC 40                           3759.80                   -47.24              -1.24%
Trading in Paris today resulted in over a one percent drop despite positive economic data that showed a decrease in December jobseekers and better-than-expected consumer confidence in January.  A 2.1 percent decline in the technology sector dragged the index lower, as seven stocks fell for each that gained.  Tech stocks fell after STMicroelectronics posted a fourth quarter net loss.  Shares in the Geneva-based company fell over 4 percent on the day.

DAX                                 5643.20                   -25.73                -0.45%
German stocks were the best performers of Europe’s major indices, despite 25 of the 30 DAX stocks closing lower on the session.  Deutsche Bank and Commerzbank, Germany’s largest financial institutions, slipped at least 1 percent each on concerns over global banking regulations.  Morgan Stanley also declared that Deutsche Bank will probably reduce its dividend payments if regulations go forward.  Steelmakers ThyssenKrupp and Salzgitter declined alongside metal prices, while carmakers Bayerische Motoren Werke and Daimler on concerns over the economic recovery and future demand for automobiles.

IBEX 35                       11042.20                   -305.10                 -2.69%
The Spanish index fell by the largest amount since August, led by a near 5 percent plunge in banking stocks.  Banking giant BBVA fell over 6 percent after reporting a 94 percent drop in fourth-quarter net profit to 31 million euros for the period.  BBVA’s massive profit loss, due to increased provisions for bad loans, weighed on the entire banking sector including Banco Santander, which also dropped over 5 percent on the day.

FTSE MIB                     21977.59                  -410.12                 -1.83%
The Italian index fell nearly 2 percent today, its second loss thus far on the week.  Financial stocks were hit particularly hard after Morgan Stanley cut its dividend estimates for Intesa Sanpaolo SpA and UniCredit SpA.  Shares of Intesa and UniCredit fell 2.9 percent each.  Banco Popolare also fell significantly after Credit Suisse Group reiterated its “underperform” recommendation on the stock.

Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com

10590 Serves as USDCAD Pivot

Euro / US Dollar

Bigger picture, “staying below 14583 keeps the larger trend pointed lower in either a 3^rd wave or C wave.  If a C wave, then the decline should extend to the 13650-13750 area.  If a 3^rd wave, then the decline likely extends closer to 13000.”  Near term, favor the downside against 14200, as there are 5 waves lower from that level.  There is potential resistance at 14110/25.  Above 14200 would shift focus to 14250-14335.

British Pound / US Dollar

Price has stayed below 16289, which keeps me bearish near term.  Bigger picture, I want to be positioned short for the expected break of 15700 and subsequent breakdown, which should be violent.  The breakdown would come from a 10 month distribution pattern known as a diamond top; a rare pattern.

Australian Dollar / US Dollar

The AUDUSD decline from 9334 is in 5 waves.  A corrective advance is expected and the resistance zone is 9100-9170.  Look to short at these levels.

New Zealand Dollar / US Dollar

The NZDUSD is nearing the December low of 6972.  A break would shift focus to 6600.  Near term, there may be 5 waves down from 7446.  A return to 7175-7240 would serve to correct the decline from there.  This would enable short positions against 7446 for a break lower.

US Dollar / Japanese Yen

The rally from 8481 is a 3 wave correction rather than the first 3 waves of an impulse.  The decline from 9380 is unfolding in a corrective manner as well.  Favor additional weakness with price below 9060.  8840/8890 is potential support.

US Dollar / Canadian Dollar

The USDCAD is approaching its December high of 10754.  A break above there would expose 10875 and above there would confirm that a 3^rd wave (or C wave) is underway towards much higher levels.  Near term, a drop below 10590 would signal that a corrective decline is underway, possibly to 10440.  Above there keeps the immediate pointed higher.

US Dollar / Swiss Franc

Like the EURUSD, it is unclear if a 3^rd wave is underway (from 10366) or if the rally from 10128 is the first wave of the next impulse.  Staying above 10366 keeps the immediate trend pointed higher but the larger trend is bullish against 10128.  A soft bullish target going forward is 11026/91.  This is the former 4^th wave extreme / 161.8% extension of the 9916-10511 advance.

Gold

The recent top in gold occurred just above long term channel resistance and was accompanied by RSI divergence.  An important top may be in place and the risk of the sell-off intensifying is high below 1163.

Light Crude

Crude’s rally from 6426 may be complete as an ending diagonal.  Diagonals are often fully retraced…and in a sharp manner.  Coming under 7245 would confirm that a top is in place and shift focus to 6426.  7650 is short term resistance.

Jamie Saettele publishes Daily Technicals every weekday morning, COT analysis (published Friday evenings), technical analysis of currency crosses on Monday, Wednesday, and Friday (Euro and Yen crosses), and intraday trading strategy as market action dictates at the DailyFX Forum.  He is the author of Sentiment in the Forex Market.  Follow his intraday market commentary and trades at DailyFX Forex Stream.   Send requests to receive his reports via email to jsaettele@dailyfx.com.

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