Comprehensive FX and Futures Daily Commentary
International Trading
EUR/USD Rally Hits a Wall After Economic Sentiment Turns Negative
Germany’s ZEW economic sentiment reading turned negative this month, coming in far below analyst estimates in a sign that the EU economy is struggling with headwinds blowing from the U.S. while EU austerity measures are being implemented. Additionally, EU industrial production flat lined and printed shy of analyst estimates of 0.2% growth. These two EU data misses are accompanied by UK CPI which remained above the important 3% threshold, painting the BOE into a corner since inflationary pressures may prevent the central bank from loosening its monetary policy to counter negative economic effects delivered by a tighter fiscal policy. Hence, today’s data stream is not flowing in favor of the risk trade and the EUR/USD may have trouble topping previous September highs over the near-term unless the U.S. data set beats. The U.S. has retail sales and business inventories data on the way. If retail sales contract then we may witness further profit taking in the EUR/USD and risk trade as a whole. However, positive U.S. consumption-related data could help stem the bleeding. Although the EU will release CPI tomorrow, more emphasis will be places on the UK’s claimant count change reading along with the UK’s inflation report hearings.
Technically speaking, the EUR/USD faces technical barriers in the form of intraday and 9/6 highs along with the highly psychological 1.30 level should it be tested. As for the downside, the EUR/USD has supports in the form of intraday and 9/10 lows. Additionally, the psychological 1.25 level could serve as a solid cushion should it be tested.
Present Price: 1.2837
Resistances: 1.2852, 1.2868, 1.2882, 1.2899, 1.2914, 1.2929
Supports: 1.2833, 1.2820, 1.2802, 1.2792, 1.2778, 1.2765
Psychological: 1.25, 1.30
GBP/USD Holds Within Narrow Sept Trading Range
The Cable is continuing its consolidation within a narrow September trading range as the risk trade encounters some weak fundamentals today. The EU’s economic confidence data took a sharp turn lower this month, indicating the EU economy is having trouble as austerity measures are implemented. Meanwhile, UK CPI came in at 3.1%, above analyst expectations of 2.9% and the critical 3% benchmark. Hence, it is likely the MPC will remain divided as policy makers debate whether to loosen monetary policy further in order to counter tight fiscal policy or whether to tighten monetary policy to cool inflationary pressures. Today’s high CPI reading does not help settle investor uncertainty and could prevent the Cable from breaking out to the topside over the near-term. However, the UK does have a few key events on deck for tomorrow which could help turn the tide. The UK will print claimant count change data and investors are expecting a decline of -5.1k. If the CCC can manage to decline by more than analyst expectations this could give a solid near-term boost to the Cable. However, if the CCC turns positive again this would throw the sustainability of the UK economic recovery into doubt as recent PMI data also came in negative. In addition to tomorrow’s CCC release the UK will also hold inflationary report hearings along with a public address from King. Hence, a combination of fundamentals and psychological forces will be driving tomorrow’s trading action. In the meantime, investors will turn their attention to U.S. retail sales data. If U.S. retail sales can manage to top estimates this may give a near-term boost to the Cable and risk trade as a whole.
Technically speaking, the Cable has supports in the form of 9/10 and 9/7 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 9/8 and 8/30 highs.
Present Price: 1.5396
Resistances: 1.5419, 1.5400, 1.5440, 1.5464, 1.5490, 1.5525
Supports: 1.5374, 1.5342, 1.5322, 1.5298, 1.5274, 1.5252
Psychological: 1.55, August Lows
USD/JPY Tumbles on PM Election and EU Data
September lows didn’t hold for long and the USD/JPY is tumbling towards 83 as investors react to the results of Japan’s prime minister election along with a wave of negative EU data. Naoto Kan was reelected prime minister today and investors are speculating that this means the possibility of near-term intervention is less likely. However, we wouldn’t read too far into this assumption since Kan and Shirakawa have suggested that they will intervene should a strengthening yen risk Japan’s economic recovery. The question becomes what level is uncomfortable enough for Japanese policy makers to take action. We may find out since investors are likely to sell off the USD/JPY until actual intervention occurs. Meanwhile, investors are also buying up the yen today after Germany’s ZEW economic confidence reading turned negative and EU industrial production flat lined. Today’s EU data set is certainly negative for the prospects of a sustainable recovery in the EU and investors are picking up the yen in risk-aversion. Meanwhile, investors are waiting on U.S. retail sales and if today’s U.S. data set can print positive this may help the USD/JPY balance above 83. On the other hand, if U.S. retail sales disappoint more bears could knock the USD/JPY a step lower.
Technically speaking, the USD/JPY has supports in the form of intraday lows. As for the topside, the USD/JPY faces technical barriers in the form of intraday and 9/10 highs.
Present Price: 83.18
Resistances: 83.33, 83.45, 83.57, 83.70, 84.11, 84.25
Supports: 83.18, 83.02, 82.86, 82.70, 82.54, 82.37
Psychological: 85, August Lows
Gold Heads Toward Sept Highs Amid Risk Aversion
Gold is popping from weekly lows and is heading towards previous September highs as investors buy back the precious metal and the yen in risk-aversion. Investors are discouraged by Germany’s ZEW economic sentiment figure turning negative and the natural reaction has been to head back towards safer grounds. Gold is benefitting as a result and this places more emphasis on upcoming U.S. retail sales data. If U.S. retail sales also print shy of analyst estimates then gold may receive enough buying interest to top previous September highs and take on 2010 highs. We’ve also got the UK inflation report hearings on deck tomorrow and if inflation remains a concern within the MPC this could benefit gold over the near-term due to its status as a hedge from inflation.
Technically speaking, gold has supports in the form of intraday and 9/13 lows. As for the topside, gold faces technical barriers in the form of intraday and 9/8 highs.
Present Price: $1256.08/ oz
Resistances: $1258.05/oz, $1259.77/oz, $1262.13/oz, $1263.42/oz, $1265.16/oz
Supports: $1255.70/oz, $1254.21/oz, $1252.71/oz, $1250.91/oz, $1248.34/oz
Psychological: $1250/oz, 2010 Highs
AUD/USD Holds Strong Despite EU Headwinds
The Aussie is holding strong around weekly highs despite risk-aversion across the broader market place in reaction to weaker than expected EU data. Germany’s ZEW economic sentiment figure came in far below analyst estimates and turned negative. Additionally, EU industrial production flatlined and today’s data is reigniting concern about the sustainability of the economic recovery in the West. However, Australia’s economy is more influenced by what happens in the East. That being said, the Aussie is golden at the moment due to positive fundamentals in China and SEA as a whole. The Asia growth story has fueled demand for Australia’s natural resources and has allowed Australia’s economy to avoid the plight of other developed nations. However, if fundamentals in the West do continue to deteriorate then this would likely cap gains in the Aussie and weigh on the currency pair over the medium-term. Investors are presently awaiting U.S. retail sales data and if these figures disappoint then the Aussie may continue consolidating below weekly highs. On the other hand, solid U.S. consumption data could allow the Aussie to take another step higher.
Technically speaking, the Aussie faces technical barriers in the form of intraday and previous 2010 highs. As for the downside, the Aussie has multiple medium-term uptrend lines working in its favor along with intraday and 9/10 lows.
Price: .9339
Resistances: .9347, .9362, .9372, .9384, .9406
Supports: .9332, .9316, .9303, .9291, .9275, .9261, .9250
Psychological: 2010 Highs
S&P Futures Flat Due to Mixed Messages
The S&P futures have paused just below August highs as investors await retail sales data. Analysts are expecting growth of roughly 0.4%. However, equities face a bit of an uphill battle today after EU data disappointed analysts. Germany’s economic sentiment reading was the most troubling development as the figure missed estimates and turned negative. Additionally, EU industrial production came in flat, indicating the EU economic recovery has hit a roadblock as governments begin to implement their respective austerity measures. Hence, the optimism concerning the global recovery has been dented and if U.S. retail sales also disappoint the S&P futures could have trouble topping August highs over the near-term. Gold and the yen are heading higher today with investors moving back towards safe-haven assets. On the other hand, if U.S. retail sales beat the street and reflect the uptick we’ve witnessed in U.S. employment then buyers may return to the market today and give the S&P futures enough of a boost to top August highs. Altogether, despite today’s setback in the EU, the S&P futures appear to be on solid footing with 1100 waiting in the wings as a support. It would take a sharp reversal in sentiment to dislodge the S&P’s present rally and if U.S. fundamentals can manage to turn a corner then we may be looking at a more lasting rally in U.S. equities. However, headwinds are still blowing around and the path higher could be choppy at best.
Price: 1119.5
Psychological: 1000
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