January 2010

Crude Oil Plunges as the Dollar Rally, Traders Look ahead to Chinese GDP

Commodities – Energy

Crude Oil Plunges as the Dollar Rally, Traders Look ahead to Chinese GDP

Crude Oil (LS NYMEX)       – $77.46      //      -$1.86     //       -2.34%
A wave of risk aversion washed over the capital markets Wednesday and crude would escape the current. The commodity tumbled for the sixth time in the past seven days, offsetting the effort bulls made yesterday to foster a reversal. However, a new trend is not yet underway as the daily range on the active futures contract fit nicely within the previous session’s breadth. Considering how active both the news wires and trading ticker was for the day, there were plenty of potential drivers for the commodity; but sentiment clearly took responsibility for price action. In the early trading hours of the Asian session, risk appetite was shaken by yet another announcement from a Chinese official suggesting the country is making a meaningful effort to take the wind out of its quickly appreciating capital markets – threatening growth in the process. As one of the best performing economies and markets in the still young recovery, China stood as a beacon of speculative interests. Taking an objective approach to today’s price action, it is true that this warning would weigh against underlying sentiment; but it certainly isn’t potent enough to carry the market on its own. In reality, the pressure for a meaningful retracement and profit taking has been steadily building for months now. This announcement along with earnings and perhaps macro data simply enabled those preparing to jump to do so.

Heading into Thursday’s session, if risk appetite (or more accurately risk aversion) is still leveraging volatility and/or trend; oil will no doubt fall into line. Additional earnings releases, economic data, sheer fear or any number of drivers can work to keep activity elevated. On the other hand, there will be specific event risk that could have a meaningful impact on the supply-and-demand fundamentals that proved so market moving over the past few months. Due in just a few hours, China will release the advanced reading of 4Q GDP. This data will not only set demand forecasts for the world’s second largest energy consumer; but it will also act as a proxy for global growth and consumption habits. Later into the US session, the US Department of Energy will release the weekly inventory figures for the period through January 15th. Forecasts call for a 2.4 million barrel increase in crude and 2 million barrel pick up in gasoline following a 3.699 million and 3.791 million increase respectively. Yet, there is bullish potential to this release considering today’s API numbers reported a 1.802 million barrel drop in its own calculations for the same period. Something else to keep in mind is that the market is rolling out to the February contract and the influx of volume can distort the true picture of speculative activity.

Commodities – Metals

Gold and Silver Break from Congestion but has the Bull Trend been Reversed?

Spot Gold       – $1,112.65       //       -$25.55       //       -2.24%
With the capital markets retreating and the dollar on the rise, gold lost its fundamental footing Wednesday. Bearing a substantial impact on price action, the day’s losses were the steepest since December 17th. What’s more, fast moving market would force a break from congestion that had set in over the previous two weeks. However, while constraints on volatility have been cast off, the market is still vying for direction. The session’s low just so happens to coincide to the prominent trend of rising lows from August. Until this barrier is broken and momentum established, the metal will remain on the verge of reversal. As for what can drive such a dramatic turn of fate for one of the market’s favorite investments, risk appetite maintains the greatest pull over the future. Earnings and China were top headlines over the past 24 hours and they will likely remain so over the next 24. Further leveraging the potential reaction from this already speculative asset, the dollar has already made a break of its own; and a true drive in risk aversion will boost the value of the currency – thereby decreasing the value of the metal. At this point, the commodity’s appeal as an inflation hedge has been pushed far into the background.

Spot Silver        – $17.89       //       -$0.85        //       -4.53%
The combined effects of the dollar’s rally and investors reining in speculative positions would lead silver to a definitive reversal and its largest single-day decline in five months. Tumbling over four-and-a-half percent on the day, there was little doubt that faltering sentiment through the European and US sessions was accelerating the commodity’s losses. After an extended period of congestion, this break is a clear catalyst for momentum. Now all we need is explicit fundamental support to keep the market moving.

Investors Mixed After Cryptic Start to 4Q Earnings Season

Those investors, who entered this round of earnings season expecting good news, received it. On the other hand, those investors who were expecting abysmal indicators saw their prediction come to fruition as well. Why has this occurred? Various blue chip and financial sector earning reports released over the last week have provided anything but solid insight into what’s on the horizon for 2010. Even as companies show robust changes in their bottom lines and balance sheets, trepidation continues to linger and has proven to weigh on investor sentiment since last Monday. On the surface, much-improved earnings-per-share data suggests that equity markets are ready to continue their bull run from last March. Upon a second review, however, excitement building over a so-called “end” to the recession appears to be a bit premature.

Two trends are dominating the analysis of earnings thus far: the equity market response and the bond market response. Better-than-expected earnings-per-share data from banks have offered equity securities investors hope that profitability is resuming and earnings growth will become a positive trend going forward; yet, at the same time, the loan losses disclosed by other institutions indicates that consumers are still struggling. JPMorgan Chase & Co. exhibited both sides in their most recent earnings: while revenues surged to over $3.3 billion dollars on strong investment banking results, and thus pushing fourth quarter EPS to $0.40 (against $0.30 expected), it suffered tremendous losses on mortgage and credit card loans. Even as non-financial sector companies begin to show steady revenue growth and solid earnings data – Intel Corp and IBM come to mind first, as both outperformed analysts’ expectations – the bank data offers the most telling insight into the future of the market. Sizeable losses at banks indicates that consumer credit isn’t mending as quick as desired or forecasted, and, going forward, could remained depressed should unemployment continue to hover around ten percent for some time. If consumers and business struggle to find footing in a market about to have stimulus withdrawn from it as an asset bubble begins to build, it’s not evidently clear who will seek loans in order to trigger profit growth for banks down the line.

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

U.S. Equities Fall Most in Eight Weeks As China Moves to Curb Lending

U.S. Session Key Developments

•    Commodities Close Lower Across The Board, Dollar Gains
•    China Moves to Curb Lending By Restricting Overall Credit Growth

U.S. stocks fell by the most in two months after poor earnings disappointed investors and China announced it would take steps to curb lending.  Investors around the world turned bearish after the news from China that regulators planned to restrict overall credit growth in the world’s largest nation to 7.5 trillion yuan ($1.1 trillion) this year.  Some lenders were asked to restrict credit because they failed to meet regulatory requirements of the China Banking Regulatory Commission.  The news caused stocks to plummet across the globe as the MSCI World Index fell for the first time since Friday.  Commodities also fell across the board as crude oil dropped over 2 percent to $77.70, a level the commodity had not closed below since December 23.  Precious metals fared even worse as gold futures plunged over $28 to $1111 and silver futures fell 90 cents to $17.90.  Risk averse investors ran for the perceived safety of the U.S. dollar, driving the greenback higher against all of its major currency crosses and the U.S. Dollar Index above 78 for the first time since December 22.  Looking ahead, there are numerous earnings reports released tomorrow that will drive investor sentiment including Goldman Sachs, Freeport-McMoRan, and Continental Airlines.  In addition, the Department of Labor’s weekly jobless claims will be released at 8:30 AM ET and the Conference Board Leading Economic Index will be released at 10:00 AM ET.

DJIA 30                      10,603.15                   -122.28                -1.14%

The Dow Jones Industrial Average plunged over 100 points today as 24 of the 30 stocks on the index closed in the red.  The worst performer was IBM, which fell over 2 percent after reporting a decline in fourth-quarter business-consulting revenue.  Kraft shares also fell over 2 percent, a day after finalizing its acquisition of Cadbury.  Kraft investor Warren Buffet said he would vote against the Kraft takeover because the price being paid is unncessarily high.  Other stocks on the decline today were aluminum giant Alcoa and energy firm Exxon as metals and energy prices fell today.

S&P 500                         1,138.04                     -12.19                  -1.06%
The broader S&P 500 fell just over 1 percent today as all ten of index sectors closed lower.  Oil & gas shares were the worst performer followed closely by basic materials, as both sectors dropped over 1.7 percent on the day.  Freeport-McMoRan fell just over 1 percent a day before its earnings release as gold and copper prices plummeted.

NASDAQ                       2,291.25                     -29.15                 -1.26%
The NASDAQ was the worst performing U.S. index today as technology firms fell 1.3%.  All ten Nasdaq sectors closed lower on the day.

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

European Equities Drop Most Since Early December

Europe Session Key Developments

•    U.K. Jobless Claims Fall the Most Since 2007, Unemployment Rebounds
•    Euro Continues Stumble After China Tightens Lending, Greece Debt Outlook Deteriorates
•    U.S. Earnings Continue to Disappoint

European markets were hammered on Wednesday despite positive economic data from the fourth quarter coming from Britain. U.K. Jobless Claims for December fell by over fifteen thousand, and the Unemployment Rate for November was revealed to have rebounded to 7.8 percent from 8.0 percent. Despite this, speculation of a slowdown of stimulus policies, led by a Chinese move to raise interest rates today, fueled a global sell-off of equity securities. In particular, commodities, and accordingly, Basic Materials companies, posted the largest losses across the major European markets as investors feared demand would weaken throughout the year. Financials also moved lower across Europe after Bank of America released earnings halfway through the European session, which indicated that it continued to lose money in the fourth quarter, in spite of improving credit conditions.

Looking forward, a moderate supply of economic data due on Thursday could help move the markets positive once again. German and the broader Euro-zone Purchasing Manager Indices are set to be released, all expected to show slight increases from the previous period. A bevy of British financial data is due, among them the M4 Money Supply for December, which points to a 8.90 percent increase from the year previous.

FTSE 100                      5420.80                   -92.34               -1.67%
British stocks fell for the first time this week despite data showing a rebound in employment. Even as the Unemployment Rate gained to 7.8 percent in November, positive sentiment among investors was offset by news earlier in the day from Asia suggesting that China will continue to draw down on its stimulus measures. Basic Materials were hit the hardest, falling 4.67 percent on risk aversion. Overall, all ten sectors dropped, with Consumer Goods, Oil & Gas, and Financials posting the next three largest losses, down 1.10 percent, 1.50 percent, and 2.12 percent each. Xstrata and Rio Tinto, both mining companies, posted losses of 6.2 percent and 4.3 percent, respectively. Other movers on the day included Johnson Matthey, which dropped 3.5 percent after Credit Suisse downgraded its shares to “underperform,” and William Hill, which gained 3.4 percent on better-than-expected fourth-quarter revenue.

CAC 40                     3928.95                   -80.72                 -2.01%
Trading in Paris today resulted in the largest drop for the French index in more than two months, declining just over two percent to 3928.95. With global recovery sentiment weakening after news that China is likely to wind down its stimulus policies, the Basic Materials sector dropped 3.43 percent amid speculation that demand for commodities is likely to diminish. Nine of ten sectors lost on the day, with five sectors losing more than two percent each. Technology posted the only positive day, gaining 0.31 percent on Wednesday. Alstom dropped 4.2 percent after Morgan Stanley cut is recommendation to “equal-weight,” while Renault fell 3.9 percent as its stock was cut to “sell” at UBS. Among the winners on the day was Groupe SEB, surging 8.3 percent for its biggest gain since June.

DAX                         5851.53                    -124.95             -2.09%
German equities fell for the first time in three days as the DAX dropped the most since November amid stimulus concerns. Investors heeded to further contraction fiscal stimulus policies as the government announced it would cut spending on renewable energy projects by at least fifteen percent. Overall, eight of nine sectors dropped on Wednesday, good for a 2.09 percent retreat. Phoenix Solar, a company that builds and operates solar plants, fell 6.0 percent following the government decision. Deutsche Bank and Commerzbank each lost more than 2.0 percent following worse-than-expected Bank of America earnings, which emerged late in the session. Other losers included ThyssenKrupp, Germany’s biggest steelmaker, as it dropped 3.0 percent following a report showing that it won’t reach full production at its North American production facilities due to soft North American demand.

IBEX 35                     11709.00                   -313.60                 -2.61%
Wednesday proved to be the worst day in five months for the Spanish index, which dropped 2.61 percent, the largest fall among the five major European equity markets. Retreats from eight of ten sectors on the IBEX contributed to the index’s most precipitous fall since August, with five sectors falling two and one-half percent or more. Basic Materials fell over three and one-half percent as commodities struggled following news of the Chinese plan to curb lending. Banco Santander dropped 3.4 percent, its biggest decline in more than one month. Banco Bilboa Vizcaya Argentaria skidded  2.7 percent to its lowest closing price in over a month after the Spanish lender announced it was considering taking a write down on its American subsidiaries.

S&P/MIB                        23126.02                     -579.65                 -2.45%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

Euro Breakdown; Target Zone is 13650-13750

Euro / US Dollar

The break of 14216 confirms my suspicions that the decline from 14583 is indeed the next bear leg of the decline from 15144.  A soft target is 13655-13750, which is the 161.8% extension of 15144-14216/14583 and the former 4th wave extreme (and former resistance as well).  Notice also that parallel channel support has been definitively broken as has the 200 day SMA.  There is a lot of air under prices.  14000 could provide short term support.  Risk can be moved to 14340.

British Pound / US Dollar

As mentioned many times last month, I am looking for short entries as price action since May 2008 may be carving out a diamond top.”  The drop below short term channel support signals that an important top is probably in place at 16464.  16200 may provide short term support but I anticipate a break of 15707.

Australian Dollar / US Dollar

“The decline from just above 9400 counts well as an a-b-c decline with wave b as a triangle and the succeeding rally from 8731 has extended into 5 waves.  Price pattern suggests that the larger trend is still up.  Near term, the decline from 9332 did not even extend to the prior 4th wave low so the rally from 9165 may be just a b wave rather than the beginning of the next leg up.  Support is concentrated between 9018 and 9087.”  Favor weakness to the bottom of the zone (9018), which is defended by former resistance.  A drop to this level, especially if the EURSUD is near 14000 at the time, would present a buying opportunity.

New Zealand Dollar / US Dollar

The NZDUSD has plunged but the decline could be corrective since the advance from 6972 counts as an impulse.  Price has tested a former 4th wave extreme at7200 but expect additional weakness as the pair subdivides lower in smaller 4th and 5th waves (possibly of C?).  7152 and 7103 are levels of interest.

US Dollar / Japanese Yen

No change: “Coming under 9079 creates overlapping waves and suggest that the rally from 8481 is a 3 wave correction rather than the first 3 waves of an impulse.  As such, the decline from 9380 is either wave A or 1 of a bearish sequence.  The advance to 9207 is probably just wave A of a smaller expanded flat.  Expect a push above 9207 in order to complete the larger B wave before a sell-off in wave C.”

US Dollar / Canadian Dollar

I wrote yesterday that “with the USDCAD failing to immediately extend losses below 10250, we must entertain the idea that the decline from the December high is an ending diagonal.  The diagonal would potentially complete the entire decline from 13068…a bullish bias is warranted.”  The USDCAD has soared but remains near the lower end of its recent range.  Still, if the rally extends into 5 waves, then we’ll be able to more confidently pronounce that a bottom is in place.  The daily count conveys the bullishness of the current situation.  10580 is potential resistance.

US Dollar / Swiss Franc

The USDCHF has extended its rally from the 61.8% retracement and conditions remain exceptionally bullish.  10511 is expected to give way to a 3rd wave, and a soft target is 11026/91.  This is the former 4th wave extreme / 161.8% extension of wave 1.

Gold

Gold’s rally from 1075 is in 5 waves therefore the larger trend is probably still up (the bearish count would treat the 5 wave rally as wave C of a flat).  Near term, expect additional weakness to at least 1108.

Light Crude

Crude’s rally from 7083 may be complete as an impulse.  Last week, crude just the prior week’s low, which should be respected as a potential reversal signal given the extent of the rally in 2009.  Price needs to stay below 8101 in order to keep the bearish count on track.  Trading above there would signal that the larger trend is probably still up.

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.

Stocks in Asia/Pacific Mixed for Fourth Day as China Aims to Curb Lending

Asia Session Key Developments

• Australia’s Consumer Confidence Near Six-Month High
• Japan Machine Tool Orders Jumps the Most Since February 1995
• Japan Convenience Store Sales Slump for the Seventh Month

Stocks in Asia/Pacific were mixed for a second consecutive session on Wednesday after the China Banking Regulatory Commission told some banks to limit lending after failing to meet capital requirements. In Australia, the consumer confidence survey leapt to the highest level in nearly six months, adding to further speculation that the central bank may raise rates at its next rate decision meeting in February, with investors pricing a 73% likelihood for a 25bp rate hike according to the Credit Suisse overnight index swaps. In addition, convenience stores sales in Japan slipped 5.5% in December to mark its seventh uninterrupted monthly decline, while machine tool orders surged 63.4% to mark the highest level of growth since February 1995. At the same time, the Tertiary Industry index weakened 0.2% in November after rising a revised 0.4% in the previous month, which was largely in-line with expectations, while the annualized rate fell 3.2% from the previous year.

Nikkei 225                          10,737.52
The Japanese equity markets pushed lower for a third consecutive day, leading the Nikkei 225 to shed 27.38 points (0.25%) and close at 10,737.52. Seven out of the ten components tumbled on the day, with consumer goods leading the way, falling 0.94%, while health care added 1.67%. Shares of Nomura Holdings tumbled 3.79% as Credit Suisse lowered its rating on Japanese brokerage firms to ‘market weight’ from ‘overweight,’ while TDK Corp advanced 1.21% as UBS raised its outlook for the sector to ‘positive’ from ‘neutral.’ At the same time, Fuji Heavy Industries rose 2.04% after JP Morgan Chase raised its share-price estimate for the stock, while Softbank Corp rallied 3.49% as Citigroup Global Markets Japan increased its rating on the firm to ‘buy’ from ‘hold.’

Hang Seng                        21,286.17

Stocks in Hong Kong plunged on Wednesday, leading the benchmark equity index to drop 391.81 points (1.81%) and close at 21,286.17.  All nine components traded lower on the day, with technology leading the way, falling 3.21%, which was followed by a 3.08% decline in consumer services. Shares of Bank of China slumped 3.42% as China’s government asked some banks to limit lending amid insufficient capital requirements, while China Life Insurance shed 1.48% as China Insurance Regulatory Commission announced firms should avoid getting caught up in a price war and develop better appraisals of sales made through financial institutions. At the same time, China Petroleum & Chemical tipped 1.95% lower on the back of lower energy prices, while China Unicom Hong Kong rose 0.64% as Chinese telecom carriers invest RNB 160.9 billion in 3G networks.

S&P/ASX 200 Index           4,868.20

Stocks in Australia rallied on Wednesday, leading the S&P/ASX 300 to climb 7.00 points (0.14%) and close at 4,868.20. Seven out of the ten components rose on the day, with consumer goods gaining 0.61%, while oil & gas lost 0.56% to taper the advance. Shares of Aquarius Platinum, the world’s fourth-largest producer of platinum pushed 2.16% higher as Platinum futures for April delivery gained 2.7%, while ASX Ltd added 1.74% as the operator of Australia’s stock exchange plans to charge rivals an annual fee of A$450,000 to access its settlement systems. Meanwhile, Computershare Ltd slipped 1.21% as Credit Suisse lowered its rating on the stock to ‘neutral’ from ‘outperform,’ while Virgin Blue holding jumped 5.88% as the number of outbound flights exceeded incoming visitors by approximately 35K in November according to a report on the Australian Financial Review.

Notable Asian Session Event Risk / Economic Releases

Oil May Correct Higher, Gold Vulnerable to Futher Losses

Commodities – Energy

Oil May See Corrective Upswing but Trend Bias Remains Bearish

Crude Oil (WTI)       $77.80       -$1.22       -1.54%
Oil prices continue to consolidate above $77.67, but positive divergence on the RSI oscillator suggest that a near-term bullish upswing may be ahead. Initial resistance lines up at $79.04. Importantly, any such move is likely to be corrective considering the large Bearish Engulfing pattern on the weekly chart that warns of a larger downturn. December’s US Housing Starts as well as weekly inventory figures from the American Petroleum Institute top scheduled event risk. Economists expect the former to show a second consecutive monthly increase, while traders are sure to scrutinize the latter as a leading indicator amid expectations that Thursday’s official DOE inventory figures will see inventories rise by another 2.5 million barrels. The near-term correlation with the MSCI World Stock index has continued to fade, suggesting supply/demand considerations rather than risk appetite are likely to remain the dominant catalyst for now.

Commodities – Metals

Gold, Silver Vulnerable to Further Losses on Q4 Earnings

Gold       $1129.58       -$8.63       -0.76%
Prices continue to test rising trend line support set from December’s swing low, with a downside break exposing support at $1118. Near-term resistance lines up at $1142.76. The correlation between gold and the MSCI World Stock index has leveled off a bit but remains at a very formidable 94.5%. This means today’s barrage of fourth-quarter earnings reports from top financial names like Bank of America, Wells Fargo and Morgan Stanley are going to be critical to watch after JPMorgan sank risk appetite last week and Citigroup fell short of expectations yesterday. US equity index futures are pointing to a lower open ahead of the opening bell in New York, hinting that the path of least resistance is to the downside.

Silver       $18.53       -$0.22       -1.17%
Prices seem to be forming an Ascending Triangle bullish continuation pattern below resistance at $18.87, but fading momentum on relative strength studies bodes ill for the upside scenario. Further, the correlation between the metal and the MSCI World Stock Index has pushed higher to 93.9% and has resisted fading (as with gold), suggesting a disappointing round of earnings releases may spark a considerable sell-off. Triangle bottom support is at $18.49, with a break below that exposing the $18.00 figure.

European Equities Surge Back to 15-Month High

Europe Session Key Developments

•    British Inflation Surges as Interest Rates Remain Low
•    European Economic Sentiment Deteriorating amid Greece Debt Situation
•    Commodities Rebound as Dollar and Pound Advance against Euro

European markets gained for the second time this week despite declining sentiment of a full-recovery spreading throughout Europe. The German ZEW Survey of Economic Sentiment showed a decrease in January, dropping to 47.2 from 50.0, while the Euro-zone ZEW Survey for the Current Situation in January dropped to -56.6. The biggest news on the day, however, was the release of the Consumer Price Index, which showed that prices rose 2.9 percent in December. As the Bank of England winds down its Asset Purchase Programme next month, investors are beginning to worry whether or not the economy can afford higher interest rates to fight inflation just yet as the economy remains weak and unemployment continues to rise.

Looking ahead to tomorrow, a slew of economic data released midway through Wednesday’s session should help boost trading volume and swing sentiment among investors. German Producer Prices from December are expected to show weak inflationary pressures (0.2 percent expected), while data relative to the year previous is likely to show considerable deflation (-5.1 percent expected). The two most important releases of the session will come from Great Britain, as Jobless Claims Change data from December (-4.6K expected) and Bank of England Policy Meeting Minutes from the January 7 meeting.

FTSE 100                      5513.14                   +18.75               +0.34%
Trading in London resulted in the second consecutive day of gains for the British Index, up 0.34 percent to 5513.14. Gains were led by the Health Care and Utilities sectors, up 1.70 percent and 1.27 percent, respectively. Overall, nine of ten sectors gained, with Financials posting the only contraction following Citigroup earnings in the middle of the trading session. Barclays, Britain’s second biggest bank, fell 1.8 percent after Credit Suisse Group speculated that it would need to raises over 17 billion Pounds in order to meet new capital requirements. Burberry surged to its highest level in more than two years after gaining 8.3 percent following reported sales. Chocolate company Cadbury added 3.6 percent after it agreed to a revised $19.7 billion offer from American company Kraft.

CAC 40                     4009.67                   +32.21                 +0.81%
French stocks continued their rebound after a poor second week in the new year, jumping 32 points on Tuesday, the second consecutive day of gains for the index. All French sectors pushed higher, collectively gaining 0.81 percent. Basic Materials, Health Care, Telecommunications, and Oil & Gas all gained more than one percent, while Financials lagged behind, only gaining 0.27 percent. Alstom, the world’s second-largest train maker dropped 2.5 percent after it announced that its third-quarter sales fell short of analyst’s expectations. Other losers on the day included Renault, which fell 2.2 percent after its recommendation was cut to “neutral” at Nomura.

DAX                         5976.48                    +57.93             +0.98%
Despite German investor confidence falling for the fourth consecutive month in January, trading on the German index resulted in the second consecutive day of gains, adding just under one percent to 5976.48. The German ZEW Survey, a measure of Economic Sentiment, dropped to 47.2 in January as worries begin to spread about Euro strength and the sustainability of the recent surge in asset prices. Eight of nine sectors gained on Tuesday, with Consumer Goods posting a one-half of one percent loss. Telecommuncations, Health Care, Utilities, Basic Materials, Financials, and Technology all posted gains greater than one percent. Dialog Semiconductor, a semiconductor maker, advanced 2.7 percent after it showed a 60 percent increase in its cash balance at year end from the year previous.

IBEX 35                     12022.60                   +151.90                 +1.28%
Spanish equity securities rose for the second straight day on Tuesday, posting the biggest gain among the five major European equity markets, up 1.28 percent. Nine of ten sectors posted gains on the day, with Technology leading the surge, up 2.33 percent. Overall, six sectors gained more than one percent. The Health Care sector posted the only loss, down 0.41 percent on Tuesday. Banco Santander added 1.9 percent after it announced plans to sell 1 billion Euros of covered bonds. Enagas jumped just under one percent after it was rated “overweight” at HSBC Holdings. Other movers on the day included Abengoa, which gained 2.4 percent, and Iberia Lineas Aereas de Espana, which gained for a fifth consecutive day to its highest price since December 4.

S&P/MIB                        23705.67                     +195.91                 +0.83%

Notable Europe Event Risk / Economic Releases

Written by Christopher Vecchio, CFDTrading Research
Please send any comments about this report to Cvecchio@fxcm.com

Dow Upside Potential Remains With Trendline Support Holding

The Dow has traded sideways / slightly up since the beginning of November.  Trading higher from the sideways consolidation favors additional upside with the next level of resistance being 10828.  Daily oscillator studies warn of a turn however (waning momentum since the summer).  Coming below the support line would be the earliest signal that the trend has reversed but a drop under 9679 is needed in order to break the series of higher lows.

The Dow continues to trade along trend line support and is now looking to target resistance at 11,000. A break above the psychological level would leave the 61.8% Fibo level of 14,198-6469. The Blue chip index has yet to test pre-Lehman levels which could be the ultimate target before a major retrace. Former resistance at 10,333-50.0% Fibo may now serve as support if we see a break below the current trendline.

The S&P is in a similar situation to the Dow in that the index has traded higher following a sideways consolidation.  A measured level at 1159 is potential resistance, which is followed by 1200 (former support).  The S&P has traded below its support line already – watch the underside of the line for resistance.  The line is at 1150 this week and increases 11 points a week (1161 next week).

The S&P 500 like the Dow continues to trade along trendline support. However, we have seen resistance at 1,150 following its break above 1,120- 50.0% Fibo of 1,576- 666. A break above the psychological level would expose 1,200.

The NASDAQ has been a beast, already rallying through its 61.8% retracement of the decline from 2862.  The next level of potential resistance is the 100% extension of 1266-1880 / 1727, at 2341.  Like the S&P, the NASDAQ is trading below its former steep support line.  This line is now probable resistance.  The line is at 2392 now and increases 26 points per week (a blow off perhaps?).

The NASDAQ has been a beast, already rallying through its 61.8% retracement of the decline from 2862.  The next level of potential resistance is the 100% extension of 1266-1880 / 1727, at 2341.  Like the S&P, the NASDAQ is trading below its former steep support line.  This line is now probable resistance.  The line is at 2392 now and increases 26 points per week (a blow off perhaps?).

Asian Stocks Mixed for Third Day on Growth Concerns, Stronger Japanese Yen

Asia Session Key Developments

• Japan Airlines Decides to File for Bankruptcy
• Hong Kong Unemployment Falls to 11-Month Low

Stocks in Asia/Pacific were mixed on Tuesday, with the Hang Seng Index climbing 1%, reversing overnight declines subsequent to the Caijing magazine stating that Shanghai may allow individuals to invest overseas. Meanwhile, unemployment in Hong Kong fell  for the fourth consecutive month, marking an 11-month low, with policy markers monitoring the risk of a “double-dip” slump in the U.S. as they plan to roll out any extra measures if needed, as stated by Financial Secretary John Tsang. At the same time, Japan’s consumer confidence fell to 37.9 in December from 39.9 the previous month, marking the second straight month that the reading pushed lower.

Nikkei 225                          10,764.90
The Japanese equity markets pushed lower for a second straight day, leading the Nikkei 225 to lose 90.18 points (0.83%) and close at 10,764.90. Eight out of the ten components slumped on the day, with the technology leading the way, falling 1.25%, and was followed by a 1.19% decline in industrials. Shares of Sumitomo Mitsui Financial Group slipped 3.11% after a report said the Japanese government will introduce new regulations that will limit loans to individual and set a ceiling on interest rates charged by lenders, while Mitsubishi Corp gave back 2.00% as Goldman Sachs lowered the rating of the company from “buy” to “neutral.” At the same time, Hitachi advanced 2.71% as Nomura Holdings raised its rating on the stock to ‘buy’ from ‘neutral,’ while Advantest Corp shed 1.34% as Dramexchange Technology’s benchmark index of dynamic-random-access memory chip prices weakened for the sixth consecutive day.

Hang Seng                        21,677.98

Stocks in Hong Kong halted the three-day decline, leading the benchmark equity index to climb 217.97 points (1.02%) and close at 21,677.98. Seven out of the nine components pushed higher on the day, with basic materials adding 2.35%, while technology slid 5.13% to taper the rise. Shares of Industrial & Commercial Bank of China climbed 3.07% as Chairman Jian Jianqing said Asian banks must expand outside the region and need to develop more sources of revenue, while China Resources Power Holdings dropped 2.88% on the back of lower commodity prices. In addition, Foxconn International Holdings tumbled 6.00% after Macquarie Group slashed its rating on the stock to ‘underperform,’ while Tencent Holdings weakened 5.01% as Goldman Sachs Group lowered its rating on the firm to ‘neutral’ from ‘buy.’

S&P/ASX 200 Index           4,861.20

Stocks in Australia halted its two-day advance on Tuesday, leading the S&P/ASX 200 to fall 49.90 points (1.02%) and close at 4,861.20.  All ten components traded lower on the day, with technology losing 3.78% at the close of the day, while industrials slid 1.83%. Shares of Flight Centre, Australia’s largest travel agency pushed 7.34% higher as it expects to report pretax profit of A$160 million to A$180 million for the 2009/2010 fiscal year, while Karoon Gas Australia advanced 4.26% after the company announced that it plans more tests and exploration to evaluate the potential of its main gas field off the nation’s northwest coast. At the same time, Computershare, the world’s largest share registrar leapt 8.20% as the company publicized that first-half earnings share will be about 20% higher than a year earlier, while Sonic Healthcare slumped 3.86% as Citigroup lowered its rating on the stock.

Notable Asian Session Event Risk / Economic Releases

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