February 2010

Crude’s Climb Tempered by Inventories, Stalled by Fed Hike

North American Commodity Update

Commodities – Energy

Crude’s Climb Tempered by Inventories, Stalled by Fed Hike

Crude Oil (LS NYMEX) -  $78.46  //  $1.13 //  1.46%

Underlying investor sentiment trends passed another day with a mute, bullish bias that would encourage benchmark crude futures prices to a fresh one-month high. Showing just how connected the commodity is to risk appetite; the commodity was little changed through the early morning sessions and lacking direction heading into the open of the US session. It wasn’t until the active hours of the early US session when the Dow Jones Industrial Average advanced at a little more heady pace that crude started show signs of life with a more than two-dollar rally over the span of half an hour. On the other hand, there is the influence of the dollar to take into account. The world’s reserve currency is also the primary pricing instrument for the commodity; and typically, where the greenback heads, crude moves in the opposite direction. However, recently, with risk trends stalling and the dollar moving on its own fundamental merits rather than its safe haven status; we have seen a modest break in correlations. This break is especially perceptible with the dollar’s after-hours rally following a surprise hike by the Fed in the discount rate to 0.75 percent. Such a move is a clear hawkish step from the central bank; it is also have its economic and broader risk implications. In acting to limit banks access to government funds, the Fed is essentially removing stimulus that has been essential to developing the recovery for the US and the entire globe. It will be very interesting to see how US equities open tomorrow in response to this data. Oil traders will certainly be paying attention.

In the meantime, the long-term supply-and-demand glut that the energy market is running received another timely update. Tuesday’s API numbers offered poor forecast for the more market-moving Department of Energy figures due during the regular trading hours Wednesday morning. The industry data reported a 63,000-barrel drop in crude holdings and 1.43 million barrel increase in gasoline stockpiles through February 12th. In contrast, the government numbers showed a significantly higher 3.085 million barrel jump in crude inventories and relatively in-line 1.62 million barrel increase for gasoline numbers. Taking a step back, these numbers may diverge from week-to-week; but over time, they are highly correlated. The same big-picture view of correlation can be taken for the data’s market-moving quotient. While this data may offer a significant change; it doesn’t necessarily add much to the existing notion that supplies are running well beyond the capacities of demand. Hence the preoccupation with risk trends.

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

Commodities – Metals

Gold Holds $1,125 and a Late-Session Dollar Rally Forces Pulls the Commodity Back

Spot Gold  -  $1,117.55  //  $10.74 //  0.97%

For most of the day Wednesday, gold was following along the steady rising trend channel that has developed since the commodity made a tentative reversal two weeks ago. And, while this same channel was still holding strong heading into the Asian session; the volatility behind the market was certainly picking up as traders had to decide whether their primary concern was with the dollar or underlying sentiment trends. Where risk appetite was relatively solid into the close of the US market; the dollar itself was finding a steady bid and received a particularly strong push after the Fed announced its hike of the discount rate. This pits two of the commodity’s primary roles in the financial markets against each other (normally they are linked thanks to the dollar’s status as a funding currency and safe haven). It is still difficult to gauge which will come out on top in the end. In between active market sessions, there is no immediate reaction from the larger investment community to the US central bank’s efforts to drain stimulus. On the other hand, the dollar would have a clear response as this certainly moves up the viability of more aggressive tightening (read: a hike in the foreseeable future not to mention asset purchases). It is likely that these correlations will sync back up Friday. In the meantime, the IMF announced yesterday that it would “shortly” turn to open mark sales of its gold reserves. This past September, the group announced it would sell approximately 13 percent of its holdings; and this effort to expand the sales likely reflects limited central bank demand (it is probably pricey even for these prominent buyers given their balance sheets). The group has 191.3 tons left for sale following the 212 tons worth of sales made since its initial announcement.

Spot Silver  -  $16.03 //  $0.16 //  1.02%

With a purer connection to risk trends and the US dollar (without the troubles that inflation hedging and safe haven status that gold has to deal with), silver would show an immediate and significant response to the US dollar’s late day advance. In little more than half an hour, the metal plunged 2.7 percent. However, despite the tumble, the commodity is still within a broader, rising trend channel. How long will this pattern hold up? That all depends on whether the greenback can find meaningful follow through and global sentiment reports a meaningful response to the Fed announcement.

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

U.S. Equities Rally For Third Day, Fed Tightens After Hours

U.S. Session Key Developments

•    Fed Unexpectedly Raises Discount Rate By 0.25 Percent After Hours
•    Commodities Advance During Market Hours, Fall After Hours on Fed Hiked
•    Philadelphia Fed Index Higher For Sixth Month, Leading Indicators Rise Slightly

U.S. stocks rallied for a third day, capping the biggest three-day rally since November for the Dow Jones Industrial Average and S&P 500.  The news of today’s trading was quickly overshadowed thirty minutes after close, however, when the Federal Reserve unexpectedly raised the discount rate by a quarter point to 0.75 percent.  During trading hours, the market moved steadily higher as investors were encouraged by further strength in commodity producing firms and generally positive economic data.  The economic docket provided an upbeat outlook for market participants as the  Philadelphia Fed beat expectations and rose for a sixth consecutive month to 17.6, while leading indicators gained for a tenth straight month.  Stocks and commodities rallied in tandem, as crude oil traded above $79 a barrel and gold held above $1120 during the session.  Commodities moved sharply lower after hours, however, as the Fed unexpectedly announced a quarter point rise in the discount rate- the rate charged to banks for direct loans from the central bank.  The rate had previously been held at 0.50 percent since 2008 as Fed policy makers maintained a dovish stance amidst the worst financial crisis since the Great Depression.  In their statement today, the central bank said that “these changes are intended as a further normalization of the Federal Reserve’s lending facilities.”  The policy statement went on further to state that the modification does not signal a change in the outlook for the economy or monetary policy, although some market participants appear to disagree.  The dollar rose nearly a full percent to $1.3510 per euro following the announcement, and gold futures sold off from their $1118-$1125 intraday range back to the $1100 level.

DJIA 30                     10,392.90                      +83.66                       +0.81%
The Dow Jones Industrial Average posted the largest gain among major U.S. equity indices, led by a 1 percent gain in financial and industrial shares.  Insurance company Travelers was the best performer on the index, adding 1.9 percent, followed by Boeing, whose shares rose 1.7 percent.  Furthering gains among financial shares were Bank of America and JPMorgan Chase, whose shares gained 1 percent each.  Procter and Gamble also traded higher, adding nearly 1 percent, after company executives reiterated its strong earnings expectations for 2010.  Walmart was the biggest laggard of the 30 Dow stocks, dropping over 1 percent after sales by U.S. stores fell 1.6 percent, worse than the company’s projection of 2 percent.  The company’s fourth quarter profit actually beat estimates, although revenues fell short of analyst expectations.

S&P 500                     1,106.75                         +7.24                         +0.66%
The broad-based S&P posted its third consecutive gain led by basic materials and industrials.  Precious metals continued their climb during the regular trading hours, pushing Newmont Mining and Freeport McMoRan higher by at least 2 percent each.  Priceline.com rose the most on the index, gaining nearly 10 percent after announcing that forecast first-quarter profit is significantly higher than analyst estimates.  Hewlett-Packard, the world’s largest personal-computer maker, rallied over 1 percent after the company posted a 25% profit jump from one year ago.

NASDAQ                     2,241.71                         +15.42                         +0.69%
The tech-heavy Nasdaq rallied for a fifth consecutive session as technology stocks gained over 0.8 percent on the day.  The fifteen largest technology companies on the Nasdaq closed higher today, with the exception of Teva Pharmaceutical.  The top performing large tech company was DirecTV, whose shares gained over 4 percent on the session.  DirecTV added customers in the fourth quarter last year despite a rise in monthly bills for customers.

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

European Equities Rally Fourth Straight Day, Euro Drops

Europe Session Key Developments

•    UK Reports Surprising Budget Deficit
•    Spain and France Issue New Government Debt
•    Euro Breaches Nine Month Low Against the Dollar

European equities advanced for the fourth straight day while government bonds fell amid more sovereign debt issuances.  The Dow Jones Stoxx 600 Index, the gauge for European stocks, gained 0.6 percent—its eight advance in nine days.  National benchmark equity indices rose in 17 of the 18 western European markets with Iceland as the lone exception.  Bond yields also rose—and bond prices fell—as France and Spain issued 11 billion euros ($15 billion) of new sovereign debt.  Additional pressure was put on bonds as Britain posted an unexpected deficit and Greece’s budget woes lingered.  The U.K. government reported that spending exceeded revenue by 4.3 billion pounds ($6.7 billion) last month after tax receipts tumbled.  Following the news, yields on Greek 10-year bonds increased as much as 19 basis points to 6.57 percent, the highest since February 9^th.

Equities trimmed gains after the US labor department reported that last week’s initial jobless claims surprisingly increased by 31,000 to 473,000.  However, the biggest stateside news came after US markets closed when the Fed surprised everyone with a hawkish move to raise the discount rate by 25 basis points.  The single currency, which had been lower for most of the day against the dollar, shot to as low as 1.3502 before finding support at the even level.  Today’s close marks a new nine-month low for the single currency.

FTSE 100                         5325.09                     +48.45                     +0.92%
British stocks rallied today on the heels of higher commodity prices.  The benchmark FTSE 100 index was led higher by producers of basic resources.  The sector was up 1.83 percent as all 12 names advanced.  BHP Billiton, the world’s largest mining company, gained 1.92 percent to add 3.28 index points—the most in the sector.  Most metals were up today despite a stronger dollar.  British Petroleum was up 0.79 percent for another 3.31 index points as crude prices advanced to 79.06 for a gain of 2.24 percent.  BT Group, the UK’s largest fixed-line company, dropped 1.2 percent after Standard and Poor’s lowered the company’s long term credit rating to the lowest level of investment grade.

CAC 40                            3747.83                     +22.62                     +0.61%
Four of five issues gained as the CAC advanced for the fourth straight day.  Tech stocks led today’s advance as the sector gained almost 3 percent.  Cap Gemini, Europe’s largest computer services company, rose 6.2 percent to lead the sector higher.  The company posted a 60 percent drop in full year net income but expects revenue to resume growth in the second half of the year.  Financials were down 0.66 percent, the lone sector to decline today.  Societe Generale, France’s second largest bank, fell 7.2 percent, its largest drop in 9 months.  The bank cut its dividend to 25 cents a share after writedowns linked to risky assets weighed on fourth-quarter profits.

DAX                                 5680.41                       +32.07                    +0.57%
German stocks were led higher today by health care stocks, which gained 1.69 percent.  Overall, 28 out of the 30 issues advanced.  Health care stocks were led higher by Fresenius, which rose 2.6 percent to 50.07 euros.  The only stock to perform better was K+S, the world’s biggest salt producer, which gained 3.4 percent to 45.78 euros.  Meanwhile, Daimler slumped 4.7 percent, its biggest decline since October and the biggest move on the DAX today.  The company reported a fourth-quarter loss, missing an analyst estimate of a profit of 254.6 million euros.

IBEX 35                        10574.20                     +75.60                    +0.72%
Spanish equities gained today as the government successfully issued 5 billion euros of new benchmark bonds.  The bond issue may have quieted some investor concerns as the government plans to cut spending to reel in its budget deficit.  Basic materials stocks led Spanish equities higher.  The sector gained over 2 percent as commodities continued this week’s rally.  Obrascon Huarte and ArcelorMittal both gained 2.27 percent for the best performances on the benchmark IBEX 35.

FTSE MIB                      21686.12                    +35.31                    +0.16%
Italy’s FTSE MIB increased for the fourth day despite debt concerns in the European Monetary Union’s third largest economy.  Italy’s Audit Court issued a warning late Wednesday that derivative contracts used by Italian municipalities could magnify debt and imbalances over time.  The FTSE MIB, Italy’s benchmark equity index, posted the smallest increase of benchmark indices in the five largest European Union economies.  Shares in Telecom Italia and Bulgari both posted notable gains; both rose 2.3 percent.  The former gained for a third straight session after Bernstein upgraded the company’s shares to “outperform” from “market perform.”

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

Asian Stock Markets Mix as Earnings Disappoint, Commodity Prices Weaken

Asia Session Key Developments

• Japan Holds Interest Rates at 0.10%
• Asian Stocks Fall From Two-Week High
• Hong Kong Unemployment Rate Holds at 4.9%
  

Stocks in Asia/Pacific were mixed on Thursday, with equities falling back from a two-week high as companies reported disappointing earnings. In Japan, the central bank kept the benchmark interest rate unchanged at 0.10% in order support the economic recovery, and the Bank of Japan is likely to maintain a dovish policy stance throughout most of the year as a result of the ongoing weakness in the private sector. Meanwhile, BoJ Governor Shirakawa argued that deflation merely means the economy’s temperature is low, and added that Chinese authorities are taking appropriate measures. The central bank head went onto say that policy shouldn’t be aimed at fiscal finances. At the same time, Hong Kong’s unemployment rate remained unchanged at 4.9% in January, while Australia’s NAB fourth quarter business confidence survey rose to the highest level since June 1994.

Nikkei 225                          10,335.69

The Japanese equity market pushed higher for the third session on Thursday, leading the Nikkei 225 to rally 28.86 points (0.28%) and close at 10,335.69. Six out of the ten components rose on the day, with consumer services gaining 1.29%, while utilities slid 0.93% to taper the advance. Shares of Clarion jumped 9.02% after the firm announced it will begin production of car navigation systems in Mexico beginning in August, while Sumitomo Electric Industries added 2.64% after Mizuho Securities raised its rating on the stock to “outperform” from “neutral.” Moreover, Sumitomo added 1.23% after signing a deal with PT Perusahaan Listrik Negara worth $156.7M, while Kobe Steel shed 1.83% on the back of lower commodity prices.

Hang Seng                        20,422.15

The Hong Kong equity market pared yesterday’s advance, leading the benchmark equity index to fall 111.86 (0.54%) and close at 20,422.15. Seven out of the nine components traded lower on the day, with technology leading the way, tumbling 1.61%, and was followed by a 0.88% decline in industrials. Shares of Aluminum Corporation of China lost 2.75% on the back of lower metal prices, while China Overseas Land & Investment dropped 1.32% as Credit Suisse said China’s property stocks, trading at the cheapest level among Asian peers, may be “worth another look.” Meanwhile, CNOOC tipped 0.81% lower after stating that they aim to increase its oil and gas output to between 257 million barrels of oil equivalent this year, while China Petroleum & Chemical slid 1.17% on the back of lower energy prices.

S&P/ASX 200 Index           4,654.90

Stocks in Australia weakened on Thursday, leading the S&P/ASX 200 to shed 13.00 points (0.28%) and close at 4,654.90. Half of the ten components traded lower on the day, with basic materials slipping 1.19%, while technology added 1.32%. Shares of BHP Billiton, the world’s largest mining company tipped 1.11% lower as metal prices in London dropped 0.4%, while Qantas Airways tumbled 8.08% after the company announced a 72% drop in earnings. At the same time, Coca-Cola Amatil advanced 4.07% after JP Morgan upgraded Australia’s largest soft-drinks maker from “neutral” to “overweight,” while Sims Metal Management slumped 7.95% after announcing a drop in first-half sales.

Notable Asian Session Event Risk / Economic Releases

U.S. Equities Extend Gains on Data, Dollar Rebounds

U.S. Session Key Developments

•    Housing Data Exceeded Forecasts Showing Signs of Real Estate Stabilization
•    Dollar Recovers Yesterday’s Losses and Provides Weakness For Commodities

Today’s economic docket provided investors with better-than-expected results across the board, bolstering confidence in the economic recovery.  January housing starts topped economists’ median forecast of 580,000, providing evidence that government stimulus has helped stabilize the real estate market.  Additionally, industrial production rose 0.9 percent in January, more than the 0.7 percent that had been anticipated.  The positive industrial data comes a day after the NY Fed reported that manufacturing in the tri-state area grew at the fastest pace in four months.  Afternoon trade was dominated by the release of the minutes from the FOMC meeting held January 26-27.  The minutes showed that the committee discussed ways to reduce the stimulus to the economy, most notably by shrinking the Fed’s balance sheet.  Some top officials pushed to start selling assets in the “near future” and return the bank’s holdings to just Treasuries.

Equities gained today despite renewed strength in the greenback and weakness in commodities.  The dollar index, a measure of the greenback’s strength against a basket of other currencies, gained 1 percent today and closed the NY session at its highest level in 7 months.  The dollar gained amid the positive US economic data as well as comments from an ally of Germany’s Chancellor Angela Merkel, who said “not a single euro” should go to Greece.  Meanwhile, commodities gave up some of yesterday’s gains with the CRB Commodity Index down 0.3 percent.  Led by gold, precious metals, which have been particularly sensitive to the dollar’s movements, were the major driver of commodity losses.  The yellow metal was down 1.2 percent to $1106.70 per ounce in COMEX trade.  Meanwhile, the energy space was mostly higher with crude actually gaining 0.4 percent to close at $77.33.

DJIA 30                      10,309.24                    +40.43                         +0.39%
Almost 2 stocks advanced for every 1 that declined as the Dow Jones Industrial Average added to yesterday’s significant gains.  Bank of America posted the biggest gain on the Dow for the second day in a row.  The company gained 3.3 percent after French competitor BNP Paribas posted impressive earnings and sent bank shares higher worldwide.  Right behind the bank was Home Depot, which gained 1.97 percent after Oppenheimer upgraded the company’s shares to “outperform” from “market perform.”

S&P 500                     1,099.51                      +4.64                           +0.42%
Consumer services and health care stocks led the broader Standard & Poor’s 500 Index to its second gain in as many days.  Both sectors were up over 0.8 percent.  Consumer services were pushed higher amid analyst upgrades to Home Depot and Whole Foods Market.  The shares of the latter surged 13 percent to post the biggest gain on the S&P 500.  Commodity related industries provided weakness amid lower commodity prices and a higher dollar.

NASDAQ                   2,226.29                      +12.10                         +0.55%
The tech heavy Nasdaq Composite Index was the best performer of the three major US indices as tech stocks gained 0.4 percent.  Sirius XM Radio was one of the better performing issues on the index today as the company’s shares broke $1 for the first time since before Lehman’s collapse in September 2008.  The company was in danger of being delisted from the Nasdaq when its shares reached a low of 5 cents in February.  Since then the company has gained 1809 percent and now needs to close above $1 for 10 consecutive days to keep its spot on the index.

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

European Equities Post Biggest Gain in Six Weeks

Europe Session Key Developments

•    Greek Bond Yields Dip Slightly After Greek Official Says Bailout Unnecessary
•    Crude Oil Posts Sixth Gain in Seven Days, Precious Metals Decline
•    Euro Resumes Bearish Trend Versus Greenback

Stocks in Europe posted their biggest gain in six weeks on renewed optimism over the Greece debt situation and better-than-expected economic data out of the U.S.  The DJ Stoxx 600 Index, a broad measure of European equities, posted its seventh gain in the past eight days.  Investors seemed cautiously optimistic that the debt problems in Greece would not threaten euro area stability after Greek Finance Minister George Papaconstantinou said yesterday that his country had “no actual need for” a bailout and was ahead of its deficit-reduction targets.  The 10-year yield on Greek bonds fell 2 basis points to 6.37 percent, reducing the excess risk premium required over equivalent German bonds by 1 basis point.  Overall, the yield on Greek bonds has increased 184 basis points this year on concern that the country would struggle to reduce the largest fiscal deficit in the euro zone.  As for the economic docket, the only major event out of Europe was U.K. unemployment, which investors managed to shrug off.  Instead, markets keyed on positive economic releases from the U.S. which showed that industrial production rose 09 percent in January and building permits beat expectations during the month.  Overall, European stocks remain 4.8 percent below this year’s high on January 19, but sentiment has clearly improved over the last week.

FTSE 100                         5276.64                     +32.58                     +0.62%
British stocks posted the smallest gain among major European indices after U.K. unemployment claims unexpectedly rose in December to the highest level since 1997.  The ILO unemployment rate for the last three months of 2009 held at 7.8 percent, as expected.  Despite the disappointing news, shares on the FTSE rallied for a third consecutive day and nine stocks gained for each that fell on the index.  Barclays gained 2.9 percent to lead banking shares higher, a day after announcing earnings that soundly beat analyst expectations.  RBS raised its recommendation on the company’s shares from “hold” to “buy” and Bank of America Merrill Lynch raised its price target.  RBS and Lloyds Banking Group gained 3.2 percent and 1.9 percent respectively, on anticipation of their earnings reports due out next week.  Further driving the FTSE today was Man Group, the largest publicly traded hedge fund, which added 5 percent on the day.  Some investors have speculated that the firm may receive a takeover bid from asset manager BlackRock.

CAC 40                             3725.21                     +56.17                     +1.53%
The French index added at least 50 points for a second consecutive session today, led by strength in financials, industrials, and technology shares.  Aerospace and defense leaders EADS was the biggest individual gainer on the index, adding 4.9 percent on news that the company’s seven government clients will pay additional costs for the A400M military plane.  Accor posted the second-largest gain, adding 4.2 percent on news that the hotel operator would increase its operable capacity by over 45 percent.  BNP Paribas, France’s largest bank, led financial shares higher after recording its fourth consecutive quarterly profit.  The bank’s shares rallied 3.9 percent after the company reported 1.37 billion euros of fourth quarter net income, above the 1.06 billion estimate of bank analysts.

DAX                                   5648.34                        +56.22                     +1.01%
The German index rallied for a third consecutive session as financials and industrials gained at least 1.4 percent each.  Deutsche Boerse, Europe’s largest exchange by market value, gained 3.7 percent to lead financials higher after the company announced a significantly smaller fourth quarter loss than analysts expected.  Deutsche Bank followed suit, adding 2.1 percent to its highest close in two weeks, after the German bank announced a sale of wealth manager BHF-Bank.  Industrial shares were led higher by mailing company Deutsche Post, which gained 2.3 percent, and Siemens, which rose 1.6 percent.  Siemens, a leader in electronics and electrical engineering, rallied on speculation that the company may acquire some components suppliers this year.

IBEX 35                          10498.60                     +104.70                 +1.01%
Shares in Spain added a full percent today, led by a 6 percent gain for Obrascon Huarte and a 4 percent increase in Grifols.  Shares of Obrascon Huarte, the Spanish building and infrastructure firm, had dropped in the four prior sesssions on weakness in the construction sector.  Grifols, a plasma firm, gained after its Australian peer CSL confirmed its full-year profit forecast.  Financial shares in Spain followed their global counterparts higher today, led by a 2.8 percent gain in Mapfre, and a 1.4 percent gain for Banco Santander.

FTSE MIB                     21650.81                     +361.61                   +1.70%
Italy’s FTSE MIB posted the biggest gain among major European indicies, rising nearly 2 percent on the day.  Trading in Milan led to a 4.6 percent gain for Fiat, after Italian Industry Minister Caludio Scajola said there are 14 offers for a company plant in Italy.  Intesa Sanpaolo gained over 4 percent on a potential unwinding of an investor agreement between Generali and Credit Agricole.  Fondiaria-Sai fell for a second straight day, dropping nearly 1 percent, after Banca Akros downgraded the insurance firm.

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

Australian Dollar Testing Fibonacci Resistance

Euro / US Dollar

The EURUSD decline below 13584 may have been wave b of a flat.  As such, I can’t rule out a rally above 13842 or even a test of 14029 before the decline resumes.  I am not however of the persuasion that the larger trend has turned up.  I view the current rally as either wave iv within the decline from the November high or a smaller 2^nd wave.  Near term, coming under 13645 should be enough to signal resumption of the downtrend.

British Pound / US Dollar

Consolidation since 15533 appears to be corrective (although it was not a triangle as I had previously thought).  Still, the corrective pattern may be wave iv of 3 within the 5 wave decline from 16464.  Ideally, a top is in place now as waves iv and i should not overlap.

Australian Dollar / US Dollar

After hours and hours of contemplation, I’ve come to the conclusion that the AUDUSD decline from 9334 sports an extended 5^th wave.  This would explain the extent of the advance from 8574, which has reached the area of the former 4^th wave (common topping area) and the 61.8% retracement of the decline.  Resistance extends to 9133 and I expect a top to form.

New Zealand Dollar / US Dollar

The NZDUSD has exceeded 7031, which leaves the rally as a complex advance.  Resistance should be strong near 7123/56.  I maintain that the larger trend has turned down.

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.  A rally above 9130 would encounter resistance at 9189.  I do not see any clear opportunity in USDJPY at the moment.

US Dollar / Canadian Dollar

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.

US Dollar / Swiss Franc

The USDCHF has declined below trendline support but remains above 10607.  Favor the upside against that level but a decline below would expose 10500.  11026-11091 is a target area.

Gold

Gold has found a bid and has rallied to a high for February, which breaks the series of lower highs and puts the downtrend in jeopardy.  Gold is holding above a short term channel but price declining from the top of its long term channel warns of a significant reversal lower.

Light Crude

The strength in crude above 7569 warns of additional strength in wave C of an expanded flat.  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.

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 on Corporate Earnings, Global Optimism

Asia Session Key Developments

• Asian Stocks Rise Most Since November
• Copper Rises to the Highest Price in Three Weeks
• Japan’s Tertiary Index Slumps in December

Stocks in Asia/Pacific advanced the most since November on the back of better-than-expected corporate earnings and reports that signaled the world economy continued to recover from the first global recession since the post-war period. In Australia, a report by the Department of Employment and Workplace Relations showed skilled vacancies climbed 1.6% in February to extend its 7-month advance, while the Westpac leading index climbed 0.5% in December after rising 1.0% in the previous month. Moreover, Japan’s Tertiary industry index tumbled 0.9% during the final month of 2009 amid expectations for a 0.2% decline, while machine tool orders surged 189.4% from a year earlier to mark the second consecutive rise.
Nikkei 225                          10,306.83

The Japanese equity markets pushed higher for a second successive day on Wednesday, leading the Nikkei 225 to rally 272.58 points (2.72%) and close at 10,306.83 as all ten components advanced on the day. Shares of All Nippon Airways added 2.26% as the company announced plans to introduce regular flights between Haneda airport in Tokyo and the U.S. military’s Iwakuni airfield in 2012, while Pacific Metals jumped 8.02% after Macquarie Group upgraded the company’s stock rating from “underperform” to “outperform.” In addition, Toshiba, Japan’s largest atomic plant builder pushed 6.32% higher subsequent to the U.S. publicizing that it had conditionally committed $8.33 billion to Southern Co. and its partners to build a power plant using Japanese reactors, while Honda Motor advanced 3.80% following the announcement that it sold 10,000 gas-powered tillers.
Hang Seng                        20,534.01

The Hong Kong equity market pushed higher on the day after being closed in observance of the Lunar New Year, leading the benchmark index to gain 265.32 points (1.31%) and close at 20,534.01. Shares of Aluminum Corporation of China gained 2.68% on the back of higher metal prices, while PetroChina edged up 1.97% as China plans to increase its shale gas production capacity by 15 billion cubic meters to 30 billion cubic meters per year. Meanwhile, China Mobile tipped 1.39% higher as the Xinhua News Agency said the firm is still looking to expand its market share overseas, while China Petroleum & Chemical added 1.35% on the back of higher energy prices.

S&P/ASX 200 Index           4,667.90

Stocks in Australia advanced for a second straight day on Wednesday, leading the S&P/ASX 200 to climb 100.10 points (2.19%) and close at 4,667.90. All ten components pushed higher on day, which was led by a 2.73% gain n health care. Shares of BHP Billiton, the world’s largest mining company gained 2.07% as copper rose to the highest price in three weeks, while Coca-Cola Amatil Ltd shed 2.49% as the firm posted weaker-than-expected earnings results.  At the same time, Newcrest Mining leapt 4.31% as gold futures for April delivery advanced 2.7%, while WorleyParsons, Australia’s largest engineering company gathered 3.00% amid Credit Suisse Group upgrading the company from “underperform” to “neutral.”

Notable Asian Session Event Risk / Economic Releases

A Surge in Risk Appetite Carries Crude to an Aggressive Rally

North American Commodity Update

Commodities – Energy

A Surge in Risk Appetite Carries Crude to an Aggressive Rally

Crude Oil (LS NYMEX) -  $77.07  //  $2.94 //  3.97%

Most risk-sensitive securities were on the advance Tuesday; and the speculative favorite crude futures contract was no exception. In fact, the front-month contract on the NYMEX forged its largest single-day advance in four months in a nearly four percent move. However, trends are not made in a single day. While the day’s advance was substantial, oil still has significant climb ahead of it to retrace the losses of the past month. What’s more, looking at the motivation behind the rally in price action, volume was notably lighter in the sessions advance than with a number of declines in the recent past; and activity has generally cooled over the past week. So, what was this source of this sudden shock? The answer is clear: risk appetite. A sudden jump in investor optimism has revived the correlations between markets and led those securities with a clear link to yield demand higher. While a measured bullish bias has developed over the past week, momentum has been notably absent as perceived fundamental strength has deteriorated with the emergence of staid recovery data and emerging financial troubles around the world. Greece in particular is a top headline concern; but concern may be temporarily lifted thanks after the EU left the market in wait for a solution to a possible default and given the extended holiday weekend for US markets. The market will look for either a meaningful solution to Greece’s pressure on the broader Euro Zone or uncertainty will very likely resuscitate fear.

Turning from the speculative influences on oil to supply-and-demand fundamentals, there has been a notable improvement in the quality of data over the past 48 hours. In particular, the Japanese 4Q GDP numbers released in the very early morning hours of Monday’s Asian session bode well for energy demand. The preliminary reading of growth reported 1.1 percent expansion through the final three months of last year – the largest increase since the first quarter of 2008. In similar fashion, the annualized reading advanced to a 4.6 percent clip. As the third largest energy consumer in the world, this data has significant tout when it comes to balancing the gap between crude output and consumption. However, like most other industrialized nations, the strong headline readings for Japan are backed by data that points to a questionable trend. Domestic spending and onset deflation are difficult weights to overcome going forward. Another notable boost in the US session was the pickup in the Empire Manufacturing report for February.  A four-month high from this indicator is notable; but tomorrow’s industrial productive figures will likely carry more weight.

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

Commodities – Metals

Gold Surges as the Safe-Haven US Dollar Tumbles

Spot Gold  -  $1,119.65  //  $18.55 //  1.68%

With risk appetite on the rise and the US dollar tumbling Tuesday, gold would find traction in its speculative appeal. On the back of the most aggressive rally in three months, the precious metal was easily able to break the momentum in the loose descending trend channel of the past two-and-a-half months. Similar remarkable reversals were made with the US dollar and Dow Jones Industrial Index (each holding a notable correlation to the extremes of sentiment). However, judging the reversal of underlying sentiment on the foundation of technical alone would be faulty. The absence of US and Chinese liquidity Monday would build pressure behind a tentative retracement of a broader bear trend this past week. However concerns with Greece’s deficit – and the European Union’s handling of the situation – develop over the rest of the week, investor sentiment will follow. The threat of a default may abate as general optimism returns; but the probability that Greece will trim its budget to meet the group’s limits anytime in the near future is extraordinarily low. This is a balance between short-term and long-term fundamental concerns. As has been the case since markets have existed, greed can fill in for fundamental shortfalls and fear pick apart silver linings. Gauging speculators’ bias for risk is essential for charting the course for gold. In the meantime, an eye should be kept on upcoming inflation data. This morning, the United Kingdom’s consumer-based price readings jumped to a 3.5 percent clip – though BoE governor King suggested this was a temporary surge. US inflation indicators scheduled over the next three days will act to confirm whether this the trend for the global economy. If price pressures actually accelerate, it could add additional fuel to a bullish trend for this inflation-hedge.

Spot Silver  -  $16.14 //  $0.59 //  3.82%

With a marked jump in risk appetite and the biggest drop from the US dollar in nearly three months, silver was shooting higher Tuesday. Without the burden of such fundamental roles as inflation-hedge or safe-haven (like gold), this metal would show a purified response to the drive in risk appetite. Looking at price action, the commodity saw its biggest single-day rally since November 16th and easily cleared the even $16/ounce level. Maintaining this course will not be nearly as difficult as maintaining momentum. Monitoring the activity of the dollar and Dow will give a meaningful read on the actions of this commodity.

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

U.S. Equities Surge On Rising Commodities, Manufacturing Data

U.S. Session Key Developments

•    Crude Oil Posts Biggest Advance in Four Months, Gold Posts Largest Gain in Three Months
•    Empire Manufacturing Grows At Fastest Pace in Four Months
•    U.S. Dollar Falls For Third Consecutive Day Against Major Currencies

U.S. stocks rallied in the week’s first day of trading as strong manufacturing data and a revival in risk appetite boosted commodity and equity markets.  The positive shift in sentiment helped push the S&P 500 to its largest gain since November 5.  Initially, markets moved higher on the open after a release from the Federal Reserve Bank of New York showed that manufacturing in the tri-state area surpassed expectations in February.  The manufacturing index grew at the fastest pace in four months, rising from 15.92 to 24.91, as sales increased and unemployment subsided.  Furthering today’s stocks rally were rising commodity prices, led by crude oil which posted a 4 percent gain to close above $77 a barrel.  Gold and silver rallied 2.7 percent and 4.6 percent respectively, as the U.S. Dollar Index fell for a third consecutive session.  The euro posted its first gain against the greenback in a week as Greek Finance Minister George Papaconstantinou said that his country had “no actual need for” a bailout and was ahead of its deficit-reduction targets.  Overall, U.S. equities remain in the red this year, but valuations have become more reasonable and there may be opportunity for growth going forward.  According to Bloomberg, the S&P 500 is currently valued at 18.8 times the reported earnings of its companies, a significant drop-off from its 24.5 P/E valuation in December.

DJIA 30                     10,268.81                      +169.67                       +1.68%
The Dow Jones Industrial Average posted its largest gain since November as commodity and financial shares gained over 2 percent each.  Twenty-eight of the Dow’s thirty stocks closed higher on the session.  Bank of America was the top performer on the index today, rising nearly 5 percent as financial shares around the globe rallied on better-than-expected earnings from Barclays Bank.  American Express and JPMorgan Chase followed suit, gaining at least 2.8 percent each on the session.  As for commodity shares, Alcoa posted a 3.4 percent gain on rising costs for aluminum, while energy giants Chevron and Exxon Mobil each added over 2 percent.  Pfizer and Kraft were the only shares to trade lower today, dropping 0.4 percent each.

S&P 500                     1,094.87                         +19.36                         +1.80%
The broad-based S&P was the biggest gainer among major U.S. indices as all ten sectors on the index closed higher on the day.  Commodity stocks were the strongest performer, gaining over 2.6 percent, while financial and industrial shares also gained over 2 percent on the day.  Range Resources led the energy industry today, gaining over 6.6 percent, and was followed closely by First Solar, which added 5.4 percent.  First Solar will report its fourth quarter earnings later this week.  Industrial shares were pushed higher by a 3.1 percent gain for General Electric after the better than expected Empire Manufacturing Index reading for February.  Boeing and UPS also gained at least 2 percent each on the day.

NASDAQ                     2,214.19                         +30.66                         +1.40%
The tech-heavy Nasdaq rallied for a third consecutive session as technology stocks gained over 1.4 percent on the day.  The thirty largest technology companies on the Nasdaq closed higher today, with the exception of Blackberry maker Research in Motion.  The top performing large tech company was Seagate Technology, which added over 5 percent on the session, followed by a 4 percent gain for Autodesk.  PricewaterhouseCoopers said today that acquisition activity within the technology sector will return to “robust” levels this year after the value of such deals fell by more than 50 percent in 2009.

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

« Previous Page — Next Page »