February 2010
European Equities Halt Five-Day Rally, Euro Continues Slide Against Dollar
February 22, 2010 at 2:44 pm by CFDTrading Analyst · Leave a Comment
Europe Session Key Developments
• European Leaders Discuss Bailout for Greece
• Swiss Money Supply Increases 5 Percent in January
• Euro Continues Slide Against U.S. Dollar
Following their strongest week since July, European stocks consolidated today as all five major indices closed lower. The DJ Stoxx 600 Index, a broad measure of European equities, slipped 0.3 percent after gaining nearly 4 percent last week. Problems in Greece returned to the minds of investors after the country’s prime minister, George Papandreou, insisted yesterday that his administration was not seeking a bailout. Greek central bank Governor George Provopoulos stated today he is confident that the Greek government will reign in the euro region’s largest deficit and will meet its “very ambitious” reduction goals. Market participants took little solace from the announcement, however, as concerns linger regarding the sustainability of the euro currency. In addition to Greece, the European nations of Spain, Portugal, Ireland, and Italy are seen as threats to the stability of the euro area. The region’s currency fell against the U.S. Dollar for a third time in the last four days and has now dropped over 5 percent against the greenback for the year. As for the economic docket, the only data today was a 5.6 percent increase in the Swiss money supply in January, an event that had little to no impact on price action. Looking towards trading tomorrow, the only significant economic releases that could impact the market are consumer prices from Italy and France, IFO data from Germany, and housing loans data from the U.K.
FTSE 100 5352.07 -6.10 -0.11%
British stocks fell for only the second time in the last eleven trading sessions due to weakness in health care as well as consumer goods and services. Drug makers GlaxoSmithKline and AstraZeneca were large contributors to the decline in health stocks after U.S. President Barack Obama announced that he may increase fees on drug companies to raise revenues to extend health care benefits to the uninsured. In addition, Glaxo shares were hit by concerns that the compay may face lawsuits over its Avandia diabetes treatment. As for consumer goods, tobacco companies British American and Imperial fell 1.1 percent each, just one day after leading the sector. Luxury apparel maker Burberry was the worst performer of the consumer products sector, falling 1.7 percent. On the positive side, shares of Royal Bank of Scotland rallied 3.6 percent to lead financials, as investors await the bank’s fourth-quarter earnings announcement on Thursday.
CAC 40 3756.70 -12.84 -0.34%
Despite strength in technology shares, French equities closed lower today as consumer services fell over 1.5 percent. Losses in Carrefour and Accor pushed consumer shares lower and offset a strong 2.2 percent gain in CAC technology stocks. Carrefour fell 2.4 percent after BNP Paribas cut the largest retailer in Europe from “outperform” to “neutral.” Other shares hurt by downgrades or target price revisions were insurance firm Axa and liquor maker Pernod Ricard. Axa was downgraded from “buy” to “hold” from analysts at Citigroup, while Pernod received a target price reduction from analysts at Goldman Sachs.
DAX 5688.44 -33.61 -0.59%
The German index snapped its longest winning streak this year as 21 of the 30 DAX stocks closed lower on the day. Daimler was the worst performer on the index, dropping 2.7 percent after deciding to extend the contract of Chairman Dr. Dieter Zetsche despite the company posting a $3.4 billion loss for 2009. Furthering declines in consumer goods and services was Hochtief, the largest construction company in Germany, which dropped 2.1 percent. Deutsche Lufthansa fell over 1 percent as pilots began a strike today over job security.
IBEX 35 10570.50 -106.20 -0.99%
Shares in Spain fell nearly a full percent today, as every IBEX sector closed lower on the day with the exception of basic materials. Leading the decline for the index was consumer services, as Inditex and Telecinco dropped at least 1.8 percent each. Furthering declines for the IBEX was weakness in technology and health care shares, which fell at least 1.6 percent each. As for basic materials, Acerinox posted a 1.5 percent gain, while Arcelormittal gained just under 0.1 percent.
FTSE MIB 21704.78 -67.55 -0.31%
Italy’s FTSE MIB posted a slight decline today for the first time in six sessions. Trading in Milan led to the largest decline in two weeks for Italian publisher Gruppo Editoriale L’Espresso, which dropped nearly 3 percent. Telecom Italia also posted a near-three percent decline, ending a four-day rally. Unicredit, the largest bank in Italy, fell 1 percent after Intermonte Sim reduced its price target on the firm.
Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com
Sideways Correction May be Underway in EURUSD
February 22, 2010 at 12:15 pm by Jamie Saettele · Leave a Comment
Euro / US Dollar
I mentioned the possibility that the discount rate decline was a terminal thrust from a triangle and that suspicion has been proved correct as the entire decline from 13660 has been retraced. The rally from 13443 may be the beginning of a larger 4th wave. The next major resistance is 13842. This does not mean that it is time to turn bullish however. 4th waves are often choppy and tend to form as flats or triangles. Range trading may dominate for the next several weeks.
British Pound / US Dollar
The decline from 15825 is wave of 3 within the 5 wave decline from 16464. Given the EURUSD count, it makes sense that a 4th wave correction is underway in the GBPUSD also. Former supports from 15555 to 15640 should now serve as resistance.
Australian Dollar / US Dollar
The AUDUSD has reached the area of the former 4th wave (common topping area) and the 61.8% retracement of the decline. The rally is in 3 waves and is therefore corrective but the move may be just the first leg of a larger more complex pattern. I am bearish against 9044 because even in the event of a more complex correction, a b or x wave could lead to weakness below 8874.
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 from just above 9200. 9060 is support. From a pattern perspective, clarity is lacking.
US Dollar / Canadian Dollar
I maintain a longer term bullish bias against 10223. I expect the decline from 10784, which is wave c of an expanded flat, to give way to the next leg of the larger bull. 10319/52 is support is needed. Trading above 10534 would confirm that the larger trend has turned up.
US Dollar / Swiss Franc
I remain bigger picture bullish the USDCHF but bulls should keep risk tight given the near term chop. Bottom line; stay bullish above 10645. 11026-11091 is a target area. A drop below 10645 would delay the bullish bias.
Gold
I am unsure of gold’s structure at the current juncture. The next level of resistance would be 1140/50. 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. Coming under 1098 would be bearish.
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.” Beware of a bearish reversal. Coming below 7810 would signal as much. The next level of potential resistance is 8154.
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 Rally as Fed Rate Concern Eases off, Commodity Prices Advance
February 22, 2010 at 8:46 am by CFDTrading Analyst · Leave a Comment
Asia Session Key Developments
• Japan Stocks Rise to 11-Week High
• Gold Prices Climb to One-Month High
• Australia’s New Motor Vehicle Sales Tumbles
Asian Stock Markets Rally as Fed Rate Concern Eases off, Commodity Prices Strengthen
Stocks in Asia/Pacific strengthen on Monday following as a smaller-than-estimated increase in U.S. consumer prices eased concern that the Fed may raise interest rates at its next rate decision meeting on March 16th. In Australia, new motor vehicle sales in January tumbled for the first time since July 2009, while Japan’s supermarket sales declined for the 14th straight month. In the currency markets, the USD/JPY tumbled for a second straight day, reaching a low of 91.175, while looking to test the 50-day SMA (90.85) for support.
Nikkei 225 10,400.47
The Japanese equity market pared Friday’s decline, leading the Nikkei 225 to advance 276.89 points (2.74%) and close at 10,400.47 on Monday as all ten components traded higher on the day. Shares of Bridgestone, the world’s largest tire maker by sales climbed 4% as the company forecasted a full-year net income of 45 billion yen compared to a 1.04 billion yen for the year ended December 31st, while Hino Motors, Japan’s biggest maker of heavy-duty trucks added 6.1% after Morgan Stanley boosted the company’s stock price to 390 yen from 350 yen. Meanwhile, Nikon pushed 3.8% higher following Credit Suisse Group raising the company’s rating from “under perform” to “neutral,” while Kobe Steel rose 3.18% on the back of higher metal prices.
Hang Seng 20,377.27
The Hong Kong equity market pared Friday’s decline on Monday, leading the benchmark equity index to advance 483.25 points (2.43%) and close at 20,377.27 as all nine components pushed higher on the day. Shares of Aluminum Corporation of China climbed 3.51% on the back of higher metal prices, while United Co. Rusal, the world’s largest aluminum producer soared 5.5% after the company stated that it plans to produce 3% more aluminum this year than in 2009 and 7% more alumina, while Esprit Holdings, the largest Hong Kong-listed clothier, pushed 2.3% higher after Citigroup recommended investors to buy the stock. In addition, PCCW, the city’s largest phone company slid 0.9% amid Hong Kong police investigating Chairman Richard Li’s failed bid last year to buy the city’s biggest phone company, while PetroChina gained 2.94% on the back of higher energy prices.
S&P/ASX 200 Index 4,717.50
Stocks in Australia strengthened on Monday, leading the S&P/ASX 200 to gain 82.40 points (1.78%) and close at 4,717.50. Nine out of the ten components rallied on the day, with basic materials leading the way, adding 2.60%, while telecommunications slipped 4.43% to taper the advance. Shares of BHP Billiton, the world’s largest mining company added 2.8% as copper futures for May delivery rose 2.2%, while Newcrest Mining, Australia’s largest producer of gold rallied 4.6% as gold prices rallied to a one-month high. Meanwhile, Challenger Financial Services Group advanced 5.5% subsequent to the company returning to profit and lifting its earnings forecast at its life insurance unit, while Seven Network retreated 5.2% after the network agreed to acquire WesTrac Holdings for A$1 billion in stock.
Written by Michael Wright, CFD Trading Research
Questions? Comments? Email me at mwright@fxcm.com
Oil, Gold Vulnerable as Technical Positioning, Risk Trends Favor Downside
February 22, 2010 at 6:41 am by Ilya Spivak · Leave a Comment
Commodities – Energy
Oil Vulnerable as Technical Positioning, Risk Trends Favor Downside
Crude Oil (WTI) $79.74 -$0.07 -0.09%
Prices have met significant resistance at $80.67, a former support level that is being reinforced by the top of a rising channel that has guided the upward correction that has materialized this month. Negative RSI divergence argues for a move lower from here, with initial support seen at $77.53. Shares are lower in Europe while US equity index futures have given back all of their Asia-session gains and now trade in negative territory, bolstering the case for a downside scenario considering the 20-day percent change correlation between crude and the MSCI World Stock Index stands at a formidable reading of 0.89. The economic calendar may help dilute selling pressure, however, as the Dallas Fed’s measure of manufacturing activity is expected to rise 10% in February, marking the biggest increase in three years and boosting oil demand expectations.
Commodities – Metals
Gold, Silver Technical Positioning Points to Bearish Reversal
Gold $1122.41 +$3.21 +0.29%
Gold continues to trade sideways below resistance at $1125.13, with negative RSI divergence hinting that a move lower is in the cards from here. Initial support lines up at $1101.16, the recent range bottom. As with oil, the 20-day percent change correlation with the MSCI World Stock Index remains formidable (now at 0.78), meaning the signs of weakness emerging across European shares and US index futures bolster the likelihood of the downside scenario.
Silver $16.41 +$0.09 +0.59%
Silver’s technical positioning closely mirrors that of oil, with negative RSI divergence hinting at fading bullish momentum below resistance at the intersection of a horizontal support-turned-resistance level and the top of a rising channel set from the swing bottom set earlier this month ($16.50). The 20-day percent change correlation between the cheaper precious metal and the MSCI World Stock Index is now at 0.78, so as with gold, the risk sentiment landscape is supportive of emerging selling pressure. Initial support is seen at the $16.00 figure.
European Stocks Vulnerable as Prices Approach Resistance
February 22, 2010 at 4:25 am by Ilya Spivak · Leave a Comment
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 is approaching a critical upside barrier at 5383.72, the 61.8% Fibonacci retracement of the downswing from the swing high in mid-January, a level reinforced by support-turned-resistance at the bottom of a previously broken rising channel. Relative strength studies area heading into overbought territory, hinting that some manner of pullback may materialize in the near term. Initial support is seen at 5316.79, the 50% Fib.
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 are approaching key resistance at 57400, the top a near-term rising channel and the previous swing top from earlier this month. Negative RSI divergence suggests a move lower is likely from here, targeting the channel bottom at 56012.
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 has pushed through resistance at 3764.00, the 76.4% Fibonacci retracement of the decline from February’s swing high, but negative RSI divergence suggests below falling trend line resistance bodes ill for continued bullish momentum. Initial support lines up at 3722.33, the 61.8% Fib.
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 is approaching resistance at 1071.62, the 61.8% Fibonacci retracement of the down move from early February. Negative RSI divergence argues for a reversal lower at this juncture, with the initial downside barrier at the 50% Fib (1056.63).
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
Italian issues has overcome resistance at the 61.8% Fibonacci retracement of the down move from this month’s swing high (21724.43), but a formidable barrier lines up nearby at the top of a rising channel formation. If bullish momentum persists, the next relevant boundary lines up at 22021.84, the 76.4% Fib retracement. Alternatively, a turn lower sees initial support at the 50% Fib level (21484.05).
European Equities Cap Biggest Weekly Gain Since July
February 19, 2010 at 8:49 pm by CFDTrading Analyst · Leave a Comment
Europe Session Key Developments
• French Data Generally Disappoints, Euro-Zone and German Data Show Improvement in Manufacturing
• Commodities Trade Sideways After Fed Raises Discount Rate
• Euro Gains Versus Greenback For Second Time This Week, Pound Falls To Nine-Month Low
Stocks in Europe extended their largest weekly gain since July as manufacturing data for Germany and the general euro zone beat expectations. The Dow Jones Stoxx 600 Index, a broad measure of European equities, rose 0.5 percent to increase its weekly gain to 3.9 percent. After initially trading lower on yesterday’s unexpected news of Fed tightening, European shares rallied collectively on strong economic data from Germany, Italy, and the general euro zone. Germany announced that the country’s PMI manufacturing index unexpectedly rose from 53.7 to 57.1 in February, while industrial orders in Italy trumped expectations by rising 10.1 percent in 2009. Furthering bullish sentiment was a report that the euro area’s PMI manufacturing index and PMI composite index beat expectations for December. As for commodities, crude oil ticked slightly higher as it approached $80 a barrel, while metals surprisingly held at yesterday’s closing levels despite the unexpected hawkish maneuver of the Federal Reserve. During after-hours yesterday, the Fed increased the discount rate for the first time in three years, but markets managed to shake off the tightening as Chairman Bernanke’s commentary maintained that the Federal Funds Rate would remain at historic lows for the time-being. Yesterday, the greenback immediately spiked higher against its European counterparts after the Fed decision, but during today’s session the Euro managed to rally against the Dollar for only the second time this week, rising to $1.3613 at the time of this writing. The sterling, however, continued its slide against the American currency, falling to a nine-month low on the session. Overall, the U.S. Dollar Index rallied intraday above 81.30, and closed near a seven-month high.
FTSE 100 5358.17 +33.08 +0.62%
British stocks posted their ninth gain in the last ten days, led by consumer goods which gained 1.7 percent. At least two stocks gained for each that fell on the FTSE today, as better-than-expected retail sales over the twelve months ended in January boosted investor sentiment. Unilever was the biggest gainer among consumer goods companies, adding 2.6 percent on the session, while tobacco firms British American and Imperial added over 2 percent each. British American received a boost from analysts at Nomura, yesterday, who raised their price target on the company’s shares. The only sector to close lower today was basic materials, hurt by a 1.8 percent decline for Anglo American after the mining company posted a 53 percent decline in net annual profit.
CAC 40 3769.54 +21.71 +0.58%
French equities gained over 0.5 percent today, despite weak economic data for the country. Investors managed to shrug off a drop in business confidence for February as well as worse-than-expected PMI numbers for the month. The leading sectors today were technology, financials, and utilities, which each added at least 0.8 percent. Vallourec, a tubular technology firm, posted the biggest gain on the CAC, adding over 2 percent on the day. Following closely behind were Lagardere, Credit Agricole, and Vivendi, which each gained at least 2 percent on the session. Overall, twenty-nine of the forty CAC stocks closed higher in the week’s final day of trading.
DAX 5722.05 +41.64 +0.73%
The German index extended its longest winning streak this year as strong manufacturing data increased risk appetite and lead stocks higher. Consumer goods led the way with a 2 percent gain, while technology and consumer services shares added at least 1.3 percent each. Automobile producers were the strongest group among the consumer goods sector as BMW gained 3.4 percent and Daimler added 2.5 percent. Technology shares were led by a 1 percent gain for Infineon and SAP.
IBEX 35 10676.70 +102.50 +0.97%
Shares in Spain added nearly a full percent today, led by a 3 percent gain in health care shares and a 2.4 percent rise in consumer services. Bolsas Y Mercado was the strongest performer on the index, adding 3.8 percent, while Grifols closed right behind, up 3 percent. Thirty-three of the thirty-five index stocks closed higher in the week’s final day of trading, with Gamesa and Acerinox being the only two exceptions. Gamesa shares fell despite a decision to rehire 79 laid-off employees.
FTSE MIB 21722.33 +86.21 +0.40%
Italy’s FTSE MIB posted the smallest gain among major European indicies, despite a strong industrial orders report. The report showed that industrial orders unexpectedly rose 4.7 percent in December and 10.1 percent for the year. Trading in Milan led to a strong showing for EEMS Italia, which gained 6 percent after Intermonte Sim reiterated a “buy” rating on the company. Italian carmaker Fiat also posted a strong gain of 2.3 percent, after Cheuvreux said that Fiat’s profit targets are not out of reach despite weakness in the automobile sector.
Written by James Russell, CFDTrading Research
Please send any comments about this report to JRussell@fxcm.com
US Equities, Commodities, Greenback All Higher After CPI Report
February 19, 2010 at 8:09 pm by CFDTrading Analyst · Leave a Comment
U.S. Session Key Developments
• CPI Report Relieves Investors of Fed’s Stimulus Withdrawal
• Dollar Reaches Eight Month High Against Basket of Currencies
A lower than expected rise in the Consumer Price Index gave US stocks a lift and helped cap off the biggest weekly rally since November. Initially, index-futures had been pointing to a lower open after the Fed raised the discount rate by a quarter point to 0.75 percent in a surprise decision made yesterday after exchanges closed. Investors worried that the move was the first of many that the Fed would be taking to remove the unprecedented stimulus that has been propping up the financial system. Futures than pared losses after the CPI rose 0.2 percent in January, less than the 0.3 percent economists had been predicting. The CPI, a gauge of consumer inflation, quieted investors’ worries by signaling that inflation has not yet become a problem.
The greenback spiked after yesterday’s surprise Fed move but also trimmed gains after the CPI data. The dollar index, a measure of the dollar’s strength against its major trading partners, was as high as 81.342 before closing the week at 80.553—its highest weekly close since the first week of June 2009. Commodities gained despite the strength in the greenback with the CRB Commodity Index up 0.6 percent. Precious metals were the best performers, with gold spot up 0.95 percent and silver spot up 2.9 percent. Energy was also up as crude gained 0.95 percent but natural gas gave up 2.47 percent. Next week we will hear about US Consumer Confidence as well as fourth-quarter GDP as we wait to see if equities can continue with this week’s rally.
DJIA 30 10,402.35 +9.45 +0.09%
The Dow Jones Industrial Average gained for the fourth straight day to finish the week up 2.5 percent. The index trimmed its 2010 decline to less than 0.3 percent after briefly turning positive for the year during the session. Just over half the issues were up today as Pfizer, Du Pont, and Boeing all gained over 1 percent to lead the advance.
S&P 500 1,109.17 +2.42 +0.22%
Six of the ten industry sectors were up today as the Standard and Poor’s 500 Index posted the largest advance of the three major US indices. Utility stocks were up 1.41 percent as crude oil reached a five-week high. Financial stocks rose 0.57 percent as a group as Berkshire Hathaway, a recent addition to the S&P, gained 2.74 percent to contribute the most to the S&P’s advance. Berkshire shares closed at 78.74, a 15-month high.
NASDAQ 2,243.87 +2.16 +0.10%
The tech heavy Nasdaq Composite Index closed higher today despite tech stocks giving up 0.27 percent. Just over half of tech stocks advanced while Dell contributed the most to the sector’s decline. The company’s shares dropped 6.7 percent after the PC manufacturer reported that gross margin fell below the 18 percent projected by analysts. Holiday sales of low-priced PCs and higher component costs weighed on earnings.
Written by Gary Chalik, CFDTrading Research
Please send any comments about this report to GChalik@fxcm.com
Crude Follows Other Capital Markets by Shaking off Fed’s Surprise Stimulus Withdrawal
February 19, 2010 at 7:17 pm by John Kicklighter · Leave a Comment
North American Commodity Update
Commodities – Energy
Crude Follows Other Capital Markets by Shaking off Fed’s Surprise Stimulus Withdrawal
Crude Oil (LS NYMEX) - $79.79 // $0.73 // 0.92%
The late session drop from crude yesterday in response to a surprise tightening of the Fed’s monetary policy proved temporary (just as it was for the US dollar). Broad-based risk appetite recovered its footing and developed reasonable momentum, lifting the trader-friendly commodity to a five-week high while simultaneously keeping within the general channel that has defined price action since the February 5th reversal. This price action was certainly having its influence on positioning. According to the CFTC’s Commitment of Traders (COT) report, net speculative long positioning in light sweet crude on the NYMEX jumped 63 percent to 68,436 contracts through the week ending February 16th. Notably, this represents only 5.3 percent of net open interest. The contrast of the weekly advance and the generally depressed interest behind the commodity mimic the sentiment that underlies price action. Most capital markets have climbed slowly this past week; but the threats to stability are numerous and certainly growing in scope. Looking forward, the two most immediate threats to speculative positioning are the potential that a European Union crisis will spread from Greece and concern that the withdrawal of stimulus and accommodative monetary policy will expose an otherwise week market.
As for the fundamental balance between supply-and-demand, today’s macro data added little to a strong growth forecast. Indeed, this was the overall theme for the entire week. Today, a 1.2 percent drop in January UK retail sales was offset by an increase in the Euro Zone’s manufacturing activity survey for February. Neither of these indicators would have an overwhelming impact on the broader levels of global consumption. Recently, the API reported US fuel consumption through the month of January fell to its lowest level for that particular month in 12 years. Considering global policy officials have lowered trimmed their growth projections and have stepped up their efforts to withdrawal the same stimulus that fueled reinvestment through 2009, it will be difficult for demand to catch up to current levels of output (even in their notably depressed state). Next week, there is plenty of scheduled event risk to tip the scales of supply and demand; but the revisions for US, German and UK GDP will hold the most tout through the component figures adjustments. Another consideration for the week’s open is the expiration of the March oil contract on the NYMEX. Rolling over positions will undoubtedly skew price action.
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Commodities – Metals
Gold Mirrors the Dollar’s Reversal Leaving the Metal to a Distinct Range
Spot Gold - $1,119.99 // $11.29 // 1.02%
Both gold and the US dollar would resuscitate their distinct correlations to risk appetite trends (on opposite sides of the scale). The revived relationship between markets would help to amplify the dramatic swing in underlying sentiment trends. Following the close of the active US session Thursday, the Federal Reserve’s surprise hike to the discount lending rate sparked a sense of fear that mirrored the reaction to China’s repeated increase to its own reserve ratio. This step by the world’s largest central bank is aimed at normalizing monetary policy; but it has the very significant side effect of removing the same stimulus that nursed risk appetite back to health through 2009. This effort is building steam globally and will keep pressure on speculative interests for some time to come. However, taking stock of the general sentiment for the week, traders deemed the immediate reaction to the Fed’s hike as overblown. The safe-haven dollar would pullback from eight-month highs; and gold would find encouragement from both the currency and risk appetite. On the other hand, there are a few interesting notes to be made. First of all, the precious metal has not held consistently at a $1,125 range high. In contrast, gold priced in euros would hit a record high (reflecting the fiscal and economic troubles in the Euro Zone). Another notable development was the divergence in Friday’s price action and inflation pressures. The US CPI figures cooled unexpectedly in January – reducing the metal’s value as an inflation hedge. According to the COT figures, net long speculative positioning grew by 7,399 contracts to 188,858 in the week through Tuesday.
Spot Silver - $16.32 // $0.47 // 2.94%
Another solid rally would extend silver to its highest level in two weeks; and yet the metal would not leave the comfort zone defined by the rising trend channel from the February 5th reversal. The boost in volatility and steady bullish bearing would be found through the concurrent influences of a jump in risk appetite and drop in the US dollar. Avoiding the burden of most swells in economic data and concerns over inflation, this commodity is playing its role as a speculative asset well. Looking ahead to next week, the dollar’s divergence to risk trends will likely close as the latter picks up momentum. This will likely unify and intensify silver’s momentum. Looking at speculators interest, the COT figures reveled a modest 1.7 percent increase in net long positioning to 25,378 contracts.
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 Dollar Consolidates Gains; EURUSD 13660 Defines Trend
February 19, 2010 at 11:19 am by Jamie Saettele · Leave a Comment
Euro / US Dollar
Perspective is of utmost importance when dealing with speculative activities and this EURUSD daily chart offers just that. Yesterday’s break may have been a terminal thrust from a triangle but the break also distanced price from the 100% extension level (13650), which increases . With price pressing the bottom of its channel, focus remains on the 161.8% extension at 13073 (which is why the target is 13100). Staying below 13658 keeps the trend pointed lower. 13423 may provide support.
British Pound / US Dollar
The GBPUSD has broken lower but the decline from 15825 may be wave 5 of the 5 wave decline from 16464. Price has reached the mid 15300’s…an important level in that 15356 was a breakout level from 2009. However, do not neglect an extended 3rd of a 3rd count from 15825; especially since price has broken below unorthodox channel support. These breaks often signal the beginning of an extended move. 15500 is resistance.
Australian Dollar / US Dollar
I wrote yesterday that the AUDUSD “has reached the area of the former 4th wave (common topping area) and the 61.8% retracement of the decline. Resistance extends to 9133 and I expect a top to form.” I am bearish against 9044 and expect the decline to accelerate. Initial support is 8780.
New Zealand Dollar / US Dollar
I wrote yesterday that “a break of the short term channel should be enough to proclaim the return of the decline.” The NZDUSD broke the aforementioned channel and risk can therefore be moved to 7088. A move above would expose 7123/56. 6900 is potential short term support.
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 rally has blown through the top of its short term channel and reached resistance from 9200. 9140 is short term support. From a pattern perspective, clarity is lacking.
US Dollar / Canadian Dollar
From yesterday, “I maintain a longer term bullish bias against 10223. 10415, which is former resistance and the 61.8% retracement, has held. Long term traders can establish longs against the January low but short term traders should await clarification of the near term picture. Near term, the rally that ended just shy of 10500 may be wave iv of c. A drop below 10408 would complete wave c. Support should be strong just below 10400 (watch the mid channel line).” The USDCAD slipped below 10400 to reach 10395 and turned up to trade through the c wave channel. Favor the upside against 10395. 10583 is potential resistance.
US Dollar / Swiss Franc
I remain bigger picture bullish the USDCHF but bulls should keep risk tight given the near term chop. Bottom line; stay bullish above 10645. 11026-11091 is a target area.
Gold
I am unsure of gold’s structure at the current juncture. The next level of resistance would be 1140/50. 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. Coming under 1098 would be bearish.
Light Crude
An expanded flat is probably nearing completion in crude. I wrote yesterday that “if this is the pattern that is unfolding, then price would exceed 7804 before the larger trend turns back down. A drop below 7569 would re-inspire confidence in the downside.” Beware of a bearish reversal. Coming below 7810 would signal as much. The next level of potential resistance is 8154.
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 Slump as Fed Hikes Discount Rate, Commodity Prices Weaken
February 19, 2010 at 10:15 am by David Song · Leave a Comment
Asia Session Key Developments
- Asian Stocks Fall Most in Two Weeks
- New Zealand’s Credit Card Spending Advances
Stocks in Asia/Pacific weakened on Friday, marking the largest declined in two weeks subsequent to the Federal Reserve raising its discount rate for the first time in more than three years. The increase in the commercial bank lending rate adds concern that stimulus measures in the U.S. will be wound down throughout the first-half of the year as the Fed aims to normalize policy in 2010. In New Zealand, credit card spending rose 1.5% in January, marking the highest level since April 2009, while Japan’s all industry activity index slipped 0.3% in December.
Nikkei 225 10,123.59
The Japanese equity market pared yesterday’s advance, leading the Nikkei 225 to shed 212.11 points (2.05%) and close at 10,123.58 on Friday as all ten components pushed lower. Shares of Kirin Holdings fell 2.18% after announcing it will sell its Agribio unit to H2 Equity Partners, while Mizuho Financial Group slipped 2.84% as Goldman Sachs lowered its rating on the stock to “sell” from “neutral.” At the same time, Taiheiyo Cement Corp gained 3.60% after the Nikkei English newspaper said the firm will lower production by 30% to cut costs, while Japan Steel Works retreated 3.22% on the back of lower commodity prices.
Hang Seng 20,422.15
The Hong Kong equity market traded lower for a second successive day on Friday, leading the benchmark equity index to shed 528.13 points (2.59%) and close at 19,894.02 as all nine components declined on the day. Shares of Aluminum Corporation of China slid 4.17% on the back of lower metal prices, while Esprit Holdings, the largest Hong Kong-listed clothier retreated 4.74% following the U.S. Federal Reserve unexpectedly raised the discount rate for the first time in three-year. In addition, Li & Fung, the biggest supplier of toys and clothing to Wal-Mart, slumped 3.57% as the U.S. retailer expects a “challenging” first quarter, while CNOOC plunged 3.76% on the back of lower energy prices.
S&P/ASX 200 Index 4,635.10
Stocks in Australia weakened on Friday for a second successive day, leading the S&P/ASX 200 to shed 19.66 points (0.42%) and close at 4,635.10. Six out of the ten components tumbled lower on the day, with consumer services leading the way, shedding 1.39%, while telecommunications added 0.90% to taper the decline. Shares of Boart Longyear retreated 7.25% after Deutsche Bank AG downgraded the company from “buy” to “hold,” while Fortescue Metals Group, Australia’s third-largest producer of iron ore slid 1.41% amid the company stating that first-half profit slumped 94%. At the same time, National Australia Bank, Australia’s fourth-largest bank slid 2.70%as quarterly profits were unchanged from a year ago, while Avoca Resources plunged 4.26% on the back of lower commodity prices.
Notable Asian Session Event Risk / Economic Releases
