February 2010

U.S. Equities Trim Weekly Loss On Fourth Quarter GDP Revision

U.S. Session Key Developments

•    U.S. Fourth Quarter GDP Revised Higher to 5.9 Percent, Personal Consumption Lower
•    Existing-Home Sales Drop in January, Chicago Business Gauge Better-Than-Expected
•    Commodities Trade Higher as Greenback Falls Against Major Cross Currencies

U.S. stocks posted a slight gain in the final day of trading this week, as estimates for fourth quarter economic growth were shown to be higher than previously thought.  Despite today’s gain, however, the S&P 500 closed the week down 0.4 percent to 1,104.  The market-moving GDP revision was announced one hour before the opening bell and showed that the U.S. economy expanded 5.9 percent in the fourth quarter of 2009, better than the 5.7 percent initial estimate.  The GDP data was revised higher thanks to stronger business investment in the quarter and a greater contribution from inventories.  The personal consumption aspect, however, was revised lower to 1.7 percent from a 2.0 percent initial reading.  Overall, stocks traded mostly sideways during the session as other economic data released today was mixed.  The Chicago Purchasing Managers Index unexpectedly rose from 61.5 to 62.6 in February, but the University of Michigan Confidence indicator fell in the month and existing home sales disappointed for January.  Home sales were expected to rise 0.9 percent in January but instead were shown to have fallen 7.2 percent, after declining 16.2 percent in the month prior.

Globally, stocks had a strong day as the major European indices and China’s Hang Seng Index each traded at least 1 percent higher.  Investor risk appetite made a strong return as commodities joined stocks in trading higher across the board.  Crude oil prices gained for the third time this week, adding nearly 2 percent to $79 a barrel, while gold futures posted a second consecutive gain and closed the week near the $1120 level.  As for currencies, the U.S. Dollar was generally weak, falling against most of its major counterparts, including the euro.  The U.S. Dollar Index fell for a third consecutive day, but held above the 80 level for a seventh consecutive session.

DJIA 30                     10,325.26                      +4.23                       +0.04%
The Dow Jones Industrial Average closed slightly above even on a low-volume trading day.  Volume on U.S. exchanges today was slightly under 8 billion shares, 11 percent less than the 2010 average due to a snow storm in New York City and the surrounding area.  JPMorgan Chase led the index with a 3.2 percent gain after analysts at Barclays recommended buying the bank’s shares.  The bullish commentary led to a near full percent gain among financial shares.  Other stocks that outperformed the index included General Electric and drug maker Merck, which each added 0.8 percent on the day.  The worst performer on the index was Kraft Foods, which fell over 1.3 percent on the day.

S&P 500                     1,104.49                         +1.55                         +0.14%
The broad-based S&P 500 posted a small gain in the final day of trading this week on strength in financials and basic materials shares.  Financials rose nearly 0.7 percent on bullish commentary from Barclays analysts as well as commentary from Fed Chairman Ben Bernanke in the past two days that suggested rates would remain low for the foreseeable future.  The basic materials sector added 0.3 percent today, as commodities generally traded higher during the session.  Mining company Freeport McMoRan gained over 1 percent, while Barrick Gold Corp. added 0.2 percent on higher precious metals prices.  On the downside, AIG fell 10 percent for the biggest loss  on the index after posting a fourth-quarter net loss of $8.8 billion.

NASDAQ                     2,238.26                         +4.04                         +0.18%
The tech-heavy Nasdaq was the best performer among major U.S. indices as technology stocks posted a slight gain.  Among the heaviest-weighted fifteen tech stocks on the index, smart phone competitors Research in Motion and Apple posted the largest gains.  Shares of each company rose at least 1.2 percent as shares of Palm, another smart phone competitor, sank on news that company sales may be very weak this year.  Qualcomm was the worst performer among the large Nasdaq tech stocks, dropping 1.3 percent on the session.

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

Asian Stock Markets Advance on Enhanced Earnings, Rising Commodity Prices

Asia Session Key Developments

• Hong Kong Stocks Post Biggest Monthly Gain Since October
• Japan’s National CPI Extends 11-Month Decline
• Australia’s Private Sector Credit Rises for the Third Straight Month

Stocks in Asia/Pacific advanced on Friday amid higher commodity prices, with the Australian market benefitting from better-than-expected earnings results. Meanwhile, the economic docket in Japan showed national consumer prices extended its 11-month decline, with the annualize rate slipping 1.3% from the previous year, while manufactures increase production at the fastest pace since May as outputs jumped 2.5% in January to top forecasts for a 1.0% rise. However, sales by large retailers in the region tumbled 5.6% during the same period amid expectations for a 4.6% decline, while motor vehicle production surged at an annual pace of 30.7% after advancing 8.6% in December. At the same time, Australia private sector credit rose for the third straight month in January, with the index increasing 0.4% after rising 0.3% in the previous month.

Nikkei 225                          10,126.03

Stocks in Japan strengthened on Friday, paring yesterday’s decline, leading the Nikkei 225 to advance 24.07 points (0.24%) and close at 10,126.03. Seven out of the ten components traded higher on the day, with oil & gas adding 1.52%, while utilities tumbled 0.65%. Shares of Mazda Motor rallied 4.00% after the Japan Automobile Manufacturers Association said output for the country’s 12 vehicle makers rose 31% from a year earlier, while Aeon rose 2.93% amid Goldman Sachs Group upgrading the company’s stock rating from “neutral” to “buy.” At the same time, NEC, Japan’s largest maker of personal computers pushed 2.49% higher as the company announced a 3-year plan to raise its net income to 100 billion yen, while Nippon Light Metal increased 4.08% on the back of higher metal prices.

Hang Seng                        20,608.70

The Hong Kong equity market pushed higher on Friday, with stocks posting its biggest monthly gain since October, leading the benchmark equity market index to gain 209.13 points (1.03%) and close at 20,608.70 as all nine components rallied on the day. Shares of China Petroleum & Chemical advanced 4.10% on the back of higher energy prices, while Cathay Pacific Airways gained 2.12% as the company, along with Air China signed a an agreement in Beijing establishing a jointly owned, Shanghai-based cargo airline. In addition, China Unicom jumped 7.63% after Deutsche Bank raised its share price forecast for the firm and raised the rating to “buy” from “hold,” while China Mobile added 0.20% as Guotai Junan Securities reported that the company or its state-owned parent may buy 20% of Shanghai Pudong Development Bank for about 40 billion yuan.

S&P/ASX 200 Index           4,637.70

Shares in Australia halted yesterday’s decline, leading the S&P/ASX 200 to rally 43.60 points (0.95%) and close at 4,637.70. Six out of the ten components pushed higher on the day, with utilities leading the way, adding 2.46%, while telecommunications shed 0.99% to taper the advance. Shares of Newcrest Mining, Australia’s largest gold producer tipped 1.92% higher as gold futures in New York gained for the first time this week, while Crown, Australia’s largest casino owner climbed 2.17% as the company posted first-half profit . Moreover, Perpetual gained 2.77% after Credit Suisse raised the company’s stock rating from “underperform” to “neutral,” while Woolworths, Australia’s largest retailer soared 5.46% as the firm plans to buy back A$400M of stock outstanding.

Notable Asian Session Event Risk / Economic Releases

Asian Stock Markets Decline Amid Reemerging Concerns for Greece, Falling Commodity Prices

Asia Session Key Developments

• Australian Private Capital Expenditure Rebounds in Fourth Quarter
• Japanese Investors Buy Net 348 Billion of Overseas Debt
• Hong Kong Trade Deficit Narrows in January

Stocks in Asia/Pacific traded lower for the second session on Thursday amid growing concerns about Greece’s ability to bring its debt crisis under control, with the prospects of the spillover effects leading investors to cut back on any bullish bets. Meanwhile, the economic docket showed private capital expenditure in Australia rose 5.5%, with the rebound encouraging an improved outlook for the region, while Japanese investors bought a net 348 billion yen of overseas debt last week. Moreover, Hong Kong exports leapt 18.4% in January, marking the largest gain since 2006, which lowered the trade deficit to HKD 17.4B from HKD 29.5B in December.

Nikkei 225                          10,101.96

Stocks in Japan tumbled lower for a third consecutive day, leading the Nikkei 225 to shed 96.87 points (0.95%) and close at 10,101.96. Eight out of the ten components pushed lower on the day, with industrials slipping 1.46%, while utilities added 0.66% to taper the decline. Shares of Sumitomo Electric Industries slumped 3.15% after the Japan’s Fair Trade Commission launched an antitrust investigations for the firm, while Nippon Yusen K.K. slipped 1.52% following a drop in the Baltic Dry index, which gauges the cost for shipping commodities. At the same time, Tosoh Corp tumbled 4.50% after Goldman Sachs Group lowered its rating on the firm to “sell” from “buy,” while Pacific Metals lost 1.67% on the back of lower commodity prices.

Hang Seng                        20,399.57

The Hong Kong equity market weakened on Thursday, leading the benchmark equity index to shed 68.17 points (0.33%) and close at 20,399.57.  Eight out of the nine components plunged on the day, with consumer services leading the way, shedding 1.25%, while basic materials rose 0.16%. Shares of CNOOC tipped 0.98% lower on the back of lower energy prices, while China Overseas Land & Investment advanced 1.18% as S&P held an improved outlook for the company and sees a “possible upgrade” for the firm’s credit rating. At the same time, CLP Holdings slipped 0.47% after announcing a 21% drop in last year’s profit, while Aluminum Corporation of China shed 0.40% on the back of lower metal prices.

S&P/ASX 200 Index           4,594.10

Shares in Australia extended yesterday’s decline, leading the S&P/ASX 200 to slip 54.40 points (1.17%) and close at 4,594.10. Eight out of the ten components declined on the day, with industrials losing 2.54%, which was followed by a 1.74% fall in basic materials. Shares of Goodman Fielder lost 4.21% after its first-half earnings fell short of expectations, while Kagara dived 8.99% following UBS slashing the company’s stock rating from “neutral” to “sell.” Moreover, IOOF Holding rallied 7.53% as the company reported “record” pre-amortization net profit during the first-half, while Riversdale Mining retreated 6.78% on the back of lower commodity prices.

Notable Asian Session Event Risk / Economic Releases

Oil, Gold Threatened as Greece Sinks Risky Assets

Commodities – Energy

Oil Prices Threaten Support as Greek Downgrade Threat Sinks Risky Assets

Crude Oil (WTI)        $79.53       -$0.47       -0.59%
Technical positioning is essentially unchanged from yesterday: prices at the bottom of a rising channel set from the swing low established earlier this month (now at $79.17), with a break lower exposing horizontal support at $77.53 and ultimately the $76 figure. The push lower may be catalyzed as risky aversion makes a comeback in the wake of comments from ratings powerhouse Standard & Poor’s, who said that they may downgrade Greece again by the end of March. This comes on the heels of yesterday’s downgrade of Greece’s four top banks by Moody’s. The issue has also been compounded by comments from Greek Deputy PM Theodoros Pangalos, who told the BBC that Germany has no right to criticize his country after devastating it under the Nazi occupation, adding that the current crop of EU leaders are of “very poor quality” and unfit to manage Europe’s fortunes. Such outbursts will make it all the more difficult for Western Europe to sell a Greek bailout to its electorates, who are already upset with the idea of spending their tax money to finance southern Europe’s spendthrift policies, making the likelihood that the troubled region is left to its own devices significantly more likely. The prospect of a sovereign default with the Euro Zone has sent investors fleeing out of risky assets, with stocks broadly lower in Asia as well as opening in the red in Europe. US equity index futures are likewise in the red, hinting that oil may mount a push lower considering the near-term percent change correlation between crude and the MSCI World Stock Index stands at a firm 0.91. January’s US Durable Goods Orders and weekly Jobless Claims figures headline the economic calendar.

Commodities – Metals

Gold, Silver to Extend Losses as Risky Aversion Gains Momentum

Gold       $1091.90       -$5.85        -0.53%
Prices have taken out range support at $1101.16, with the door now open for a move to resistance-turned-support at the top of a falling channel established from January’s swing high (now at $1073.21). As with oil, the turmoil in Greece promises to encourage further losses as the near-term percent change correlation between the yellow metal and the MSCI World Stock Index remains significant at 0.75.

Silver       $15.75       -$0.22       -1.39%
Technical positioning is unchanged from yesterday: are trading sideways above horizontal support at $15.68, with near-term resistance at the bottom of a previously broken rising channel set from the swing low set earlier this month. The correlation between the cheaper precious metal and the MSCI World Stock Index matches that of its more expensive counterpart at 0.75, suggesting bearish momentum is set to resume. A break past current support exposes considerable downside potential toward the $15.00 figure.

European Stocks Correct Higher, Bias Remains Bearish

WEEKLY STRATEGY

FTSE 100

Long-term Technical Outlook

The FTSE is testing channel support and a break below would strongly suggest that the advance from the 2009 low is complete. The rally is in 5 waves and is therefore probably just the first wave of a larger correction (b wave underway now). Initial support is 4955.

Short-Term Technical Outlook

The FTSE has found near-term support at 5316.79, the 50% Fibonacci retracement of the downswing from the swing high in mid-January. Near-term resistance remains at 5383.72, the 61.8% Fib reinforced by support-turned-resistance at the bottom of a previously broken rising channel. Negative RSI divergence argues for a bearish bias. A break lower exposes the 38.2% mark at 5249.86.

DAX

Long-term Technical Outlook

The DAX is in the same position as the FTSE. The index is testing channel support now and dropping below would suggest that the rally from the 2009 low is complete as an A wave. Initial support is 5159.

Short-Term Technical Outlook

German shares broke down below the lower boundary of a rising channel that had been guiding prices higher since the beginning of the month, with prices now stalling above the 38.2% Fibonacci retracement of that rally at 55702. Continued selling will target 55260, the 61.8% Fib level.

CAC 40

Long-term Technical Outlook

The CAC 40 has dropped below trend line support and a large B wave may be underway now towards 3398. Favor the downside against the January high.

Short-Term Technical Outlook

The French benchmark index found support at the bottom of a rising channel that has been guiding the move higher since the beginning of the month, a level reinforced by the 38.2% Fibonacci retracement level at 3697.72. A push lower will target the 50% Fib at 3668.73, while near-term resistance is found at the channel’s mid-line (now at 3757.56).

IBEX 35

Long-term Technical Outlook

After reversing in January, the IBEX has declined in impulsive fashion. Additionally, RSI divergence on the weekly suggests that the top is important. Favor the downside. The next support is 993.

Short-Term Technical Outlook

The IBEX corrected slightly higher to meet near-term resistance at 1025.14, the 23.6% Fibonacci retracement of the latest down leg. A break above this boundary exposes the 38.2% Fib at 1035.11, while near-term support is marked by the last swing low at 1009.01.

S&P/MIB

Long-term Technical Outlook

The FTSE/MIB reversed from the 38.2% retracement of the decline from the 2007 high and has fallen beneath channel support. The drop below channel support indicates that the path of least resistance is lower. The next level of support is 20702.

Short-Term Technical Outlook

Italy’s benchmark index has retraced a bit higher after breaking out of a rising channel that had framed the upswing from the lows set earlier this month. Near term resistance stands at 21349.62, the 38.2% Fibonacci retracement of the 02/08-02/22 rally, and reinforced by the channel’s lower boundary. Near-term support lines up at 21180.81, the 50% Fib.

Speculative Interests Override Inventory Gains to Lift Crude Prices

North American Commodity Update

Commodities – Energy

Speculative Interests Override Inventory Gains to Lift Crude Prices

Crude Oil (LS NYMEX) – $80.17 // $1.31 // 1.66%

The fundamental landscape was busy Wednesday. Nevertheless, crude would once again fall back on its correlation to risk appetite trends to establish direction and volatility. While the Asian session was dominated by selling pressure for capital assets, optimism would recovery heading into the European and US session. This same sequence of price development can be seen on the intraday crude chart. Before the US session started, the active futures contract on the commodity would pull back to $78.25 – testing a notable channel floor. From this trough, trades drove oil 2.8 percent higher to the top of this week’s range capped at $80.50. While this seems a clean move, it does draw a few inconsistencies. From the futures market, we can see that volume has steadily declined through the past three weeks’ bull trend and open interest has followed a similar pattern. Another interesting point is the relaxed correlation between oil and the US dollar. Normally, the two hold a highly negative correlation that reflects their respective roles in the risk spectrum. Yet, today, the both crude and dollar followed an Asian session contraction and subsequent recovery. This could simply be labeled a break from pace for the currency; but in truth, this is a read on underlying sentiment trends. When the trend behind risk appetite or aversion eases, the correlation between markets begins to breakdown. If this indeed the case now, the market could be simply floundering until a clear direction is once again established.

Looking at the headlines, there were more than a few events that threatened to trigger volatility and perhaps set off a clear trend for the commodity. The most distinct threat for energy traders today was the weekly Department of Energy inventory figures. The Tuesday afternoon API (American Petroleum Institute) numbers set a bullish lean on expectations after the group reported a 3.14 million barrel increase in stockpiles. This was the biggest drop in holdings for this series in two months. In the meantime, the official consensus for the DoE report was set for a 1.9 million barrel increase. Some may have believed they had an upper hand on those that weren’t paying close attention; but the week-to-week divergences between these two reporting agencies was made clear when the DoE figures reported an impressive 3.03 million barrel increase in crude holding for the week ending February 19th. This marked the fourth consecutive increase in inventories (the longest trend of gains in nine months) to 337.5 million barrels (the highest overall level since November). The surprise quotient here was clear; but the oil prices would quickly adapt to the ‘disappointing’ figures and realign with risk appetite. In fact, this advance in sentiment was so strong, it would also survive a sharp drop in US new home sales to a record low as well as moderately discouraging testimony by Fed Chairman Bernanke and Treasury Secretary Timothy Geithner.

Watch our weekly, live coverage of the DoE Inventory figures every Wednesday beginning at 10:15 AM EST.

Commodities – Metals

A Dollar Recovery Sends Gold Below $1,100

Spot Gold – $1,097.75 // -$5.65 // -0.51%

Usually, the multiple roles gold plays in the global financial markets align to give the commodity a clear bearing and sense of momentum. However, convictions were clearly tempered as a few of the assets more influential functions were running in opposing directions. The biggest break for gold bugs was the divergence between risk appetite trends and the US dollar. Typically, the greenback acts the part of a safe haven and responds to appreciation in growth-linked assets (like equities) by falling. In a break from the norm though, a slow but steady advance in equities was running side-by-side with a rise in the currency. This forced gold trades to decide whether the commodity’s utility as a speculative asset or dollar hedge was more important. In the end, the currency’s appreciation proved dominant. This is an interesting break of pace and perhaps speaks more broadly of gold’s fundamental value beyond its supplementary roles. At its current highs, it is perhaps difficult to support the notion that this commodity makes for a low risk alternative to other securities that often provide a yield. On the other hand, the CBOE’s gold volatility showed activity levels fell to a three-week low while both open interest and volatility have extended their retracements. If a clear and momentous change in sentiment were to develop, gold activity levels would likely rebound and the cross-market correlations would likely return.

Spot Silver – $15.97 // $0.14 // 0.88%

Silver would put in for a positive close; but the price action that preceded the break may have weakened bulls’ conviction. An intraday tumble below $15.75 may not have breached a notable psychological level that has defined price action this past month; but it has broken the steady, rising trend channel that has developed from the February 5th reversal. From a fundamental standpoint, the split between the dollar and risk trends as primary fundamental drivers led to confusion for direction for silver. Looking at market activity, aggregate open interest has slipped to its lowest level since early September. On the other hand, the average level of volume has risen back to highs not seen since early December.

Discuss gold and oil trading with other traders in the DailyFX Forum

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

US Equities Rise on Dovish Interest Rate Comments

U.S. Session Key Developments

•    Bernanke Signals Prolonged Low Interest Rate Environment
•    New Home Sales Fall to Lowest Level on Record in January

US Equities rose for the first time this week following Federal Reserve Chairman Ben Bernanke’s dovish comments before a house panel.  In the statement that was released, Bernanke reiterated that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”  The fed funds futures implied probability of a 25 basis point rate hike in the April FOMC date decreased today to 5.3 percent from 6.6 percent yesterday.  In addition to Bernanke’s comments, a report by the commerce department released at the same time showed sales of new homes unexpectedly fell to the lowest level on record in January.  Stock benchmark indices temporarily pared their advance after the latter report and the dollar was pushed lower.  The greenback was lower by as much as 0.6 percent following the housing report but trimmed losses to close 0.1 percent lower.  Sterling was the only one of the G7 currencies to decline against the dollar today.  Despite the dollar’s recovery from today’s lows, commodities were able to move higher.  The CRB Commodity Index was higher by 0.9 percent.  Oil was especially strong, finishing up 1.45 percent despite a larger than expected build in weekly crude oil inventories.  On tomorrow’s economic docket investors will be awaiting US durable goods orders.  Strong demand for long lasting items is a sign of improving optimism and potential growth.  Economists are currently predicting that durable goods orders rose 1.4 percent in January.

DJIA 30                      10,374.16                    +91.75                         +0.89%
Only two stocks declined today as the Dow Jones Industrial Average rose for the first time this week.  JP Morgan and Bank of America paced gains on the index after Bernanke’s dovish interest rate comments.  Both companies’ shares were up over 2.4 percent.  Banks would benefit tremendously from a prolonged low interest rate environment.  The two declining issues were Kraft Foods and Alcoa, which dropped 0.3 percent and 0.9 percent respectively.

S&P 500                     1,105.24                      +10.64                         +0.97%
Financial stocks led the broader Standard and Poor’s 500 Index higher today.  The sector was up 1.7 percent.  Basic resource stocks struggled today.  As a group they dropped 0.1 percent, the only sub-sector that failed to log a gain.  H&R Block fell the most in the S&P 500, slumping 13 percent after the tax preparer announced they would not meet their forecasts for fiscal 2010.

NASDAQ                   2,235.90                      +22.46                         +1.01%
The tech heavy Nasdaq Composite was the best performer of the three major US indices.  Tech stocks gained 1.06 percent as a group.  Tech giants Apple, Microsoft, and Intel contributed the most to the sector’s advance as all three companies gained more than 1 percent.  Google shares gave up 0.7 percent after antitrust complaints were filed against Google by three European companies.

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

European Stocks Generally Higher on Industrial Orders, U.S. Fed Comments

Europe Session Key Developments

•    U.S. Fed Chairman Bernanke Says Interest Rates to Remain Low For Foreseeable Future
•    Standard & Poor’s Says It May Downgrade Greece’s Credit Rating
•    Europe Industrial Orders Unexpectedly Climb, Boosted by Machinery Demand
•    Euro Rises Against Greenback, Cable Falls

European stocks were mostly higher today on surprisingly strong industrial orders data for the region and commentary from U.S. Fed Chairman Ben Bernanke that indicated low rates would remain for the foreseeable future.  Equity markets in France, Germany, Italy, and the U.K. rallied for the first time this week, while Spanish stocks fell for a third consecutive session.  Investor sentiment increased during the early hours of trading after Germany announced a rise in its GfK Consumer Confidence Survey, as the index rose from 3.0 to 3.2 in March.  The European Union’s statistics office in Luxembourg announced soon after that the region’s industrial orders unexpectedly rose 0.8 percent in December.  The surprise increase was led by a rise in demand for machinery and capital goods and boosted investor confidence regarding the strength of Europe’s recovery.  As a result, both stock and commodity prices closed slightly higher, as crude oil returned to $80 a barrel and agricultural products gained.  Gold, on the other hand, closed below the $1100 mark for the first time in seven sessions despite Dollar weakness.  The U.S. Dollar Index posted its second loss in three days, closing just above the 80 level for a sixth straight session.

In the final hour of today’s trading, investors cheered comments out of the U.S. from Fed Chairman Ben Bernanke that interest rates would remain low going forward.  The Fed Chairman stated that the country’s “nascent” recovery, as seen by low rates of resource utilization and high unemployment, would require low rates “for an extended period.”  This commentary offset lingering concerns for European investors that their region’s own economic recovery still faces serious hurdles.  Unemployment in the region remains above 10 percent, and sovereign debt issues have gone unaddressed thus far.  EU leaders may be forced into action soon, however, as Standard & Poor’s said today that it will consider downgrading Greece’s credit rating in the near future.

FTSE 100                         5342.92                     +27.83                     +0.52%
British stocks traded higher today for the first time this week on strength in the technology and financial sectors.  Leading financial shares higher was Lloyds Banking, which gained 3.4 percent as investors await the company’s earnings reports tomorrow.  HSBC Holdings followed suit, gaining 2 percent as investors await its earnings next week.  Shares of HSBC, Europe’s largest bank, have rallied for eight consecutive days.  Technology shares were the second-strongest sector today as Sage Group and Autonomy Corp. gained at least 1.4 percent each.

CAC 40                             3715.68                     +8.62                     +0.23%
French equities closed higher today despite higher-than-expected job losses in December, as technology shares gained over 1.8 percent.  STMicroelectronics posted a 2.6 percent gain to lead tech stocks, while Cap Gemini and Alcatel-Lucent gained at over 1 percent each.  Yesterday, STMicroelectronics introduced a new family of highly efficient power rectifiers to help power-suppy companies achieve energy-efficient approvals.

DAX                                  5615.51                    +11.44                     +0.20%
German stocks posted a small gain after a final reading confirmed that the country’s economy stalled in the fourth quarter of 2009.  Fresenius Medical Care posted the largest gain on the DAX, adding over 4 percent on news that the company would double its budget for acquisitions to $400 million this year.  Volkswagen was the next strongest DAX performer today, gaining 1.6 percent after setting aggressive sales goals yesterday for its growing line of products.  Volkswagen also received a ‘Canadian Car of the Year’ award.

IBEX 35                          10254.00                     -58.90                     -0.57%
Trading in Spain led to the only decline among major European indices as financials fell over 1.3 percent.  Spanish banking giants BBVA and Banco Santander both dropped over 1 percent after Barclays Capital reduced its outlook on the financial institutions.  Barclays analysts downgraded BBVA from “overweight” to “underweight” and cut Banco Santander from “equalweight” to underweight”.  Telecinco continued its volatile trading of the last few weeks, dropping over 2.2 percent today.

FTSE MIB                     21346.31                     +122.24                    +0.58%
Italy’s FTSE MIB gained for the first time this week despite disappointing retail sales in December.  Trading in Milan led to a near 3 percent gain for STMicroelectronics after BofA-Merrill Lynch kept the chipmaker as its top pick for the industry.  Banco Popolare gained 2 percent after an upgrade from Banca Akros, while investment bank Mediobanca added 2.8 percent on better-than-expected net income.

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

US Dollar / Canadian Dollar Rally Confirms that Low is in Place

Euro / US Dollar

No change: “The rally from 13443 may be the beginning of a larger 4^th wave.  The next major resistance is 13842.  This does not mean that it is time to turn bullish however.  4^th waves are often choppy and tend to form as flats or triangles.  Range trading may dominate for the next several weeks.  Coming under 13443 could also complete a diagonal from 13842.  It is also worth noting that as long as price is below 13793, the series of lower highs remains intact.  The evidence is conflicting; there are better opportunities.”

British Pound / US Dollar

No change: “The decline from 15825 is wave of 3 within the 5 wave decline from 16464.  Having yet to reach Elliott channel resistance, the rally from 15346 is probably the first portion of wave 4 (could unfold as a triangle or flat).”

Australian Dollar / US Dollar

The AUDUSD has reached the area of the former 4^th wave (common topping area) and slightly exceeded the 61.8% retracement of the decline.  I mentioned the potential for additional corrective action and that has taken place.  Additional resistance is 9099 and 9170.  Coming under 8803 would inspire confidence in the downside.

New Zealand Dollar / US Dollar

The NZDUSD is in the same situation as the AUDUSD.  The rally from 6804 may have completed the entire correction from 6804 but respect the potential for an extended and more complex advance.  Staying below 7090 keeps me bearish.  Above there would expose 7156-7201.

US Dollar / Japanese Yen

The USDJPY rally (from 8481) is corrective, which leaves the pair vulnerable to weakness below that level.  Still, a larger correction may be underway since the decline from 9380 is not impulsive either.  The pair has rolled over and dropped through 9140 and 9056.  The count above suggests additional weakness below 8854.  9056-9100 is short term resistance.

US Dollar / Canadian Dollar

I am extremely bullish against 10368.  The rally from there is in 5 waves, which indicates, with a high degree of confidence, that the larger trend has turned up.  10480-10520 is short term support.  The minimum objective is above 10875.

US Dollar / Swiss Franc

No change:  “I remain bigger picture bullish the USDCHF but bulls should keep risk tight given the near term chop.  Bottom line; stay bullish above 10645 (be aware that a rally above 10902 could complete a diagonal from 10607).  11026-11091 is a target area.  A drop below 10645 would delay the bullish bias.”

Gold

Gold has broken below a short term channel and price declining from the top of its long term channel warns of a more significant downside reversal.  The short term structure is clearing up.  The decline from  1132 is in 5 waves, which indicates that the larger trend has turned down.

Light Crude

An expanded flat is probably nearing completion in crude.  I wrote last week that “if this is the pattern unfolding, then price would exceed 7804 before the larger trend turns back down.”  I favor the downside against 8078.    Coming under 7613 would probably be enough to suggest that the larger trend has turned down.

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.

Asian Stock Markets Decline for First Time in Three Days, Hong Kong GDP Tops Estimate

Asia Session Key Developments

• BOJ Provides Few Clues About Further Action
• Japan’s Exports Accelerates on Global Rebound
• Australia’s Wage Cost Rises at the Slowest Pace in a Decade
• Hong Kong 4Q GDP Expands 2.3%

Stocks in Asia/Pacific traded lower on Wednesday amid concerns about the global recovery, while Australian government bonds gained the most in almost a month. Meanwhile, Bank of Japan’s Deputy Governor Hirohide Yamaguchi said that “monetary policy actions are constrained since interest rates cannot be reduced to below zero,” and went onto add that the central bank has limited room to ease policy with interest rates “effectively” at zero. In addition, Japan’s exports advanced at the fastest pace in almost 30 years as demands jumped at an annualize pace of 40.9% in January, while Australia’s wage cost index rose at the slowest pace in a decade. In addition, economic activity in Hong Kong expanded 2.3% in the fourth-quarter to top forecasts for a 2.0% rise, while consumer prices weakened to an annual rate of 1.0% from 1.3% in December.

Nikkei 225                          10,198.83

Stocks in Japan fell for the second straight day, leading the Nikkei 225 to decline 153.27 points (1.48%) and close at 10,198.83. with all ten components pushing lower on the day. Shares of Showa Shell Sekiyu K.K. slumped 9.89% after UBS lowered its rating on the oil company to “sell” from “buy,” while Nissan Motor, Japan’s third-largest automaker dropped 3.36% following Citigroup Global Markets Japan slashing the company’s 12-month share price to 970 yen from 1,020 yen. Moreover, Dai Nippon Printing slipped 2.76% after the Nikkei newspaper said profits may decline 35%, while Kobe Steel retreated 2.47% on the back of lower metal prices.

Hang Seng                        20,467.74

The Hong Kong equity market weakened on Wednesday, leading the benchmark equity index to shed 155.26 points and close at 20,467.74. All nine components slumped on the day, with oil & gas leading the way, slipping 1.76%, which was followed by a 1.73% decline in basic materials. Shares of PetroChina lost 2.15% on the back of lower energy prices, while Hang Seng Bank added 0.81% as the 4Q GDP reading for Hong Kong topped estimates. In addition, Sino Land pushed 1.02% higher after Finacial Secretary John Tsang announced the government will offer additional residential sites for auction, while Cathay Pacific Airways held flat on the day as the company, along with affiliate Air China intends to sign an agreement on forming an air-cargo venture before the end of the week.

S&P/ASX 200 Index           4,648.50

Australian shares pared yesterday’s advance, leading the S&P/ASX 200 to shed 69.80 points (1.48%) and close at 4,648.50 as all ten components plunged lower on the day. Shares of BHP Billiton, the world’s largest mining company, lost 2.92% as the company plans to meet with Australian investors, which could lead to its first local-currency bond sale since 2001, while Rio Tinto, the world’s third largest miner pushed 3.23% lower as copper futures for May delivery gave back 2.8% on the day. At the same time, Ausenco tumbled 8.78% after the company announced a drop in full-year profits, while Asciano Ltd advanced 4.52% after the firm posted a net-income of $A188.2M for the first-half.

Notable Asian Session Event Risk / Economic Releases

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