Comprehensive FX and Futures Daily Commentary
Monday, September 6, 2010
, Posted by Usman Ali Minhas at 9:50 AM
Daily Market Commentary
EUR/USD Tests 8/18 Highs
The EUR/USD is testing 8/18 highs while still eyeing 1.30 as the Forex markets experience a relatively quiet trading session due to the Labor Day holiday in the U.S. However, activity should pick up during tomorrow’s Asia trading session with BOJ and RBA monetary policy decisions on the docket. Should the RBA give a positive outlook as we suspect this could help extend the rally in the risk trade and allow the EUR/USD to test its highly psychological 1.30 level. The data wire will be pretty quiet elsewhere, meaning optimism from Friday’s non-farm payrolls figure could spill into Tuesday’s trading session. However, we do notice some discouraging signs in that the Cable is not participating fully with the risk rally and investors are buying up the Yen again today. Hence, a sense of risk-aversion still lingers in the air and we suggest investors tread forward with cautious optimism. Regardless, the EUR/USD has made a notable recovery from August lows and it will be interesting to see whether the currency pair can manage to climb back above medium-term uptrend lines.
Technically speaking, the EUR/USD faces technical barriers in the form of 8/18 and 7/20 highs along with the highly psychological 1.30 level. As for the downside, the EUR/USD has supports in the form of 9/2 and 8/16 lows. Additionally, the psychological 1.25 level could serve as a solid cushion should it be tested.
Present Price: 1.2897
Resistances: 1.2899, 1.2914, 1.2929, 1.2947, 1.2958, 1.2970
Supports: 1.2882, 1.2868, 1.2852, 1.2833, 1.2802, 1.2786
Psychological: 1.25, 1.30
EUR/USD Tests 8/18 Highs
The EUR/USD is testing 8/18 highs while still eyeing 1.30 as the Forex markets experience a relatively quiet trading session due to the Labor Day holiday in the U.S. However, activity should pick up during tomorrow’s Asia trading session with BOJ and RBA monetary policy decisions on the docket. Should the RBA give a positive outlook as we suspect this could help extend the rally in the risk trade and allow the EUR/USD to test its highly psychological 1.30 level. The data wire will be pretty quiet elsewhere, meaning optimism from Friday’s non-farm payrolls figure could spill into Tuesday’s trading session. However, we do notice some discouraging signs in that the Cable is not participating fully with the risk rally and investors are buying up the Yen again today. Hence, a sense of risk-aversion still lingers in the air and we suggest investors tread forward with cautious optimism. Regardless, the EUR/USD has made a notable recovery from August lows and it will be interesting to see whether the currency pair can manage to climb back above medium-term uptrend lines.
Technically speaking, the EUR/USD faces technical barriers in the form of 8/18 and 7/20 highs along with the highly psychological 1.30 level. As for the downside, the EUR/USD has supports in the form of 9/2 and 8/16 lows. Additionally, the psychological 1.25 level could serve as a solid cushion should it be tested.
Present Price: 1.2897
Resistances: 1.2899, 1.2914, 1.2929, 1.2947, 1.2958, 1.2970
Supports: 1.2882, 1.2868, 1.2852, 1.2833, 1.2802, 1.2786
Psychological: 1.25, 1.30
GBP/USD Struggles as Pound Underperforms
The Pound is underperforming again today as the EUR/GBP pops higher. Investor sentiment towards Sterling is still sour after last week’s round of PMI reports fell short of analyst expectations. The UK economy has clearly hit a bump in the road, yet it remains to be seen whether the present pullback is a sign of a more lasting downturn or merely a cool down in the midst of an upward trajectory. Considering the UK parliament is in the beginning stages of implementing aggressive austerity measures the pullbacks in PMI are disconcerting. The UK will be quiet on the data wire again tomorrow, meaning monetary policy decisions from both the BOJ and RBA should dominate the trading session. Since we’re expecting a positive tone from the RBA its likely positive sentiment from last week’s U.S. employment data will carry over into Tuesday’s trading session. However, considerable global economic headwinds remain and investors should keep in mind that things were looking ugly before bulls came to life last week. Hence, we believe it is wise to be cautiously optimistic until we see whether the recent risk rally has legs. Should the risk rally lose momentum August lows in the Cable may not provide much support.
Technically speaking, the Cable has supports in the form of 9/2 and 8/31 lows. Additionally, the psychological 1.55 level could continue to have a noticeable influence over near-term movements in the Cable. As for the topside, the Cable faces technical barriers in the form of 9/1 and 8/26 highs.
Present Price: 1.5389
Resistances: 1.5398, 1.5419, 1.5449, 1.5472, 1.5503, 1.5530
Supports: 1.5374, 1.5342, 1.5322, 1.5298, 1.5274, 1.5252
Psychological: 1.55, August Lows
USD/JPY Trends Lower as BOJ Meets
The USD/JPY is trending back towards August lows as the BOJ kicks off its monthly monetary policy meeting. The BOJ will announce its decision tomorrow and the USD/JPY is struggling since analysts aren’t expecting any new action from the central bank as far as currency intervention is concerned. Regardless, statements from the BOJ will carry more weight over the near-term since the USD/JPY is trading in dangerous waters. Meanwhile, the longer the USD/JPY can hold above August lows the better chance the currency pair has of establishing a more lasting bottom. Bulls will be looking for some help from global economic fundamentals since neither the BOJ nor the DPJ are getting the job done in regards to weakening the Yen in order to aid Japanese exports. If U.S. data can manage to improve from a dismal August then investors may regain confidence in the risk trade and encourage bears to divest from the Yen and head back towards risk. Additionally, investors should monitor the ability of the EUR/USD and Cable to climb above key technical barriers, for a topside breakout in the FX risk trade would likely benefit the USD/JPY.
Technically speaking, the USD/JPY has supports in the form of 9/2 and 9/1 lows. As for the topside, the USD/JPY faces technical barriers in the form of 9/3 highs and the psychological 85 level.
Present Price: 84.07
Resistances: 84.15, 84.25, 84.39, 84.47, 84.57, 84.68
Supports: 83.98, 83.89, 83.70, 83.57
Psychological: 85, August Lows
Gold Hangs Around $1250/oz
Gold is hanging around its highly psychological $1250/oz level in a quiet trading session as Americans celebrate the Labor Day Holiday. However, markets should come alive tomorrow with monetary policy decisions from both the RBA and BOJ on deck. Although the BOJ is not expected to intervene in the currency markets at this point, should the central bank actually take action then this would likely benefit gold since looser liquidity normally leads investors towards gold as a hedge against inflation. Speaking of inflation, investors should keep an eye on activity in softs since markets have experienced huge rallies in agricultural commodities, particularly wheat. If the rally in ags spreads to oil inflation chatter could increase and boost gold in succession. Either way, gold’s long-term uptrend is clearly intact with a multitude of uptrend lines in play. The question know becomes whether gold can gain enough topside momentum to leave behind $1250/oz and tackle previous 2010 highs.
Technically speaking, gold has supports in the form of 9/3 and 8/31 lows. As for the topside, gold faces technical barriers in the form of previous September highs and the psychological $1250/oz level. Additionally, previous 2010 highs could serve as a solid technical barrier should they be reached.
Present Price: $1249.05/ oz
Resistances: $1250.91/oz, $1252.71/oz, $1254.71/oz, $1255.70/oz, $1258.05/oz
Supports: $1248.34/oz, $1246.71/oz, $1244.97/oz, $1241.60/oz, $1240.12/oz, $1238.62/oz
Psychological: $1250/oz, 2010 Highs
AUD/USD Consolidates Below August Highs
The Aussie is presently consolidating below August highs as investors take a breather ahead of tomorrow’s RBA monetary policy decision. Although analysts are expecting the RBA to keep its monetary policy unchanged from last month due to economic uncertainty in the U.S., it is likely the RBA’s policy statement will become more optimistic due to the latest round of data from Australia. In fact, we don’t think it’s outside the realm of possibilities that the RBA surprises by hiking its benchmark rate by another 25bp. Otherwise, the RBA could make it clear that another rate hike is coming next month baring a considerable fundamental slowdown in the West. Should the RBA all but guarantee tighter monetary policy in the near-future then investors could price in another rate hike and send the Aussie beyond August highs. Either way, it’s difficult to be negative on the Aussie considering the data sets we received last week. The positive Australia data wire continued today with job advertisements growing by 2.3%. Meanwhile, the BOJ also has a highly anticipated monetary policy decision on tap tomorrow, meaning markets could come alive after a relatively quiet start to the trading week due to the Labor Day holiday in the U.S.
Technically speaking, the Aussie faces technical barriers in the form of 9/3 and 8/6 highs. As for the downside, the Aussie has multiple medium-term uptrend lines working in its favor along with 9/3 lows. Meanwhile, the highly psychological .90 level becomes a technical cushion once again.
Price: .9157
Resistances: .9164, .9175, .9186, .9195, .9204, .9219, .9239
Supports: .9147, .9135, .9127, .9114, .9096, .9076
Psychological: .90, August Highs
S&P Futures Hover Around 1100
The S&P futures are hovering around their highly psychological 1100 as investors celebrate Labor Day following an impressive week in equity markets. A stronger than expected non-farm payrolls figure topped off an encouraging turnaround in sentiment with the S&P futures rallying solidly from our key long-term uptrend line. A pick-up in M&A activity along with signs of life in the employment market have rejuvenated bulls who were beaten down by a dreary month of economic data. That being said, considering headwinds do remain in the global economy it would be wise to exhibit a cautious optimism as we monitor whether August lows are a lasting bottom or just temporary relief. Interest rates in Greece are back at levels prior to the EU’s emergency rescue package and stress test results, meaning fiscal fears could once again creep back into the marketplace. However, it’s clear that the Federal Reserve and other central banks are ready to act should global fundamentals signal a double dip is approaching. Additionally, it’s probably safe to assume the government would enter the fray with a new stimulus package if matters took a turn for the worse. That being said, there is a psychological cushion in place over the medium-term to help mitigate near-term losses in reaction to negative economic data. Regardless, investors should still pay particularly close attention to upcoming data releases to see whether we’ve hit bottom in the present fundamental slowdown from recovery heights. Meanwhile, investors are awaiting details of Obama’s plan to help give a jolt to the labor market and economy as a whole. Hence, psychological forces could come back into play over the coming days. Speaking of which, the RBA and BOJ both have monetary policy decisions on tap for tomorrow and a more positive outlook from the RBA could help lift the risk trade as the S&P futures battle 1100.
Price: 1104
Psychological: 1000
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