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Wednesday, 17 November 2010 06:55

Currencies Consolidate in Very Quiet Wednesday Trade; Euro Eyes 1.3335

Contributed By: DailyFx

Eurozone sovereign debt concerns continue to dominate the markets at present, with broader sentiment being weighed down on the prospects that a timely and acceptable resolution to these problems will not be achieved at anytime in the near future. This has weighed heavily on the Euro over the past several days, while all other major currencies have also traded lower against the buck in sympathy. Also seen weighing on global sentiment have been fears that China will continue to take measures to tighten monetary policy and curb growth on escalating concerns over rising inflation. This has contributed to a decline in global equities and commodities prices, with the Greenback also very much benefiting from these fears.

So far in early Wednesday trade price action has been less than compelling, with all of the major currencies consolidating their latest setbacks against the US Dollar. But any mild bids that have been seen in currencies, have been attributed to some accommodative comments from various Fed officials, with Fed Rosengren, Evans and Lockhart all more than expecting the Fed to fully utilize the $600B in additional quantitative easing. Still, with the broader negative sentiment, negative Eurozone and negative China forces at play, we see the risks for additional upside in the Greenback over the coming days, with 1.3335 the next key level to watch in Eur/Usd. As such, our recommendation would be to continue to look to sell currencies on overdone intraday rallies against the buck.

Looking ahead, the Bank of England Minutes and UK employment data (6k jobless claims change expected, 7.7% unemployment expected) is due out at 9:30GMT, followed by Eurozone construction output at 10:00GMT. US equity futures are tracking moderately higher into the European open, while commodities trade flat and consolidate their latest declines.

Published in Forex News
Wednesday, 17 November 2010 06:56

Crude Oil Slammed Amid Continued Risk Aversion, Gold Loses Nearly $100 since Last Week

Contributed By: DailyFx

Commodities – Energy

Crude Oil Slammed Amid Continued Risk Aversion

Crude Oil (WTI) - $82.37 // $0.03 // 0.04%

Commentary: Crude oil plunged almost 3% on Tuesday, the third loss in as many days, to settle at $82.34. Oil has fallen almost 7.5% since putting in 25-month highs at $88.63 just last week. The catalyst for the latest move was continued European sovereign debt concerns. We are maintaining our position that this negative news flow is merely an excuse for traders to lock in recent profits rather than something that will derail the larger uptrend in crude oil and equity markets. The three bullish underpinnings of our bullish thesis in order of importance: 1) the robust growth in emerging markets economies, 2) the Fed’s QE2 program, and 3) the improving U.S. labor market.

Staying on the subject of the U.S. economy, we saw a solid reading on industrial production released on Tuesday. While the headline figure showed no change in production for the month of October versus the 0.3% that was expected, the miss was due to a decline in utility production which can be attributed to mild weather. More importantly, manufacturing output rose a notable 0.5%, suggesting that one of the biggest drivers of the economic recovery is still in good shape.

Tomorrow brings the weekly U.S. government inventory figures, which have been showing much larger-than-expected withdrawals in recent weeks. We will see if this bullish trend continues. The API survey is indicating that it will, with the industry source indicating a 7.6 million barrel draw in crude inventories, a 1.7 million barrel draw in gasoline inventories, and a 0.2 million barrel build in distillate inventories.

Technical Outlook: Prices have taken out support at a rising trend line set from mid-September as well as the horizontal barrier at $83.27. The bears now aim to challenge $79.49, with the $83.27 recast as near-term resistance.


Commodities – Metals

Gold Loses Nearly $100 since Last Week

Gold - $1336.70 // $3.00 // 0.22%

Commentary: Gold continued to correct on Tuesday, shedding $20.90, or 1.54%, to settle at $1339.70. Prices got as low as $1329.70, which is a full $95 below the all-time high set last week at $1424.60. Given the highly speculative nature of gold’s advance, it isn’t surprising to see this trade unwind so quickly. Moreover, as we’ve been pointing out, the rise in gold prices has not been supported by a corresponding rise in gold ETF holdings.

The specific driver of gold price action on Tuesday was a general retrenchment of risk appetite across financial markets, as well as an across the board advance in the U.S. Dollar. The task now is determining where this correction ends and if any buying opportunities emerge. Because gold remains extremely elevated, it will be awhile before we are comfortable accumulating the metal even for a trade. At this point, it may be wise to turn to technical indicators for guidance.

Technical Outlook: Prices have breached rising trend line support set from late July. Sellers now target $1322.39, the 38.2% Fibonacci retracement for the 7/28-11/9 advance. The broken trend line, now at $1356.46, has been recast as near-term resistance.

Silver - $25.37 // $0.11 // 0.42%

Commentary: Despite the steep drop in gold prices, silver managed to finish essentially unchanged on Tuesday. Prices did test lower levels near $25 in early trade, but settled at $25.48. Given that silver has fallen so precipitously in recent sessions, this pause is not surprising, but if gold continues to decline, expect silver to tag along.

The gold/silver ratio fell slightly to 52.7, but remains higher than levels earlier this month near 50. (The gold/silver ratio measures the relative performance of the two precious metals. A higher ratio indicates gold outperformance while a lower ratio indicates silver outperformance).

Technical Outlook: Prices have stalled above support at $25.33, the 61.8% Fibonacci retracement of the 10/22-11/09 upswing, with a Doji candlestick hinting a corrective upswing may be in the cards. Near-term resistance lines up at $26.10, the 50% Fib, while renewed selling targets the 76.4% level at $24.37.


Published in Forex News
Tuesday, 16 November 2010 06:56

Euro Bounces at Lows

Contributed By: DailyFx

60 Minute Bars

“Keep in mind the potential for an extended first wave count in which this latest drop is a terminal thrust from a small triangle.” The latest thrust certainly appears to have been from a 4th wave triangle and the decline channels nicely. Waves a and b appear complete so expectations are for wave c to spike above 13776 and test 13800-13830 before the larger decline resumes. Bottom line, the larger EURUSD trend is down and I favor selling rallies.

Published in Forex News
Tuesday, 16 November 2010 06:25

Australian Dollar Putting in Short Term Low

Contributed By: DailyFx

60 Minute Bars

“An AUDUSD top is most likely in place.” 5 waves down from the high are visible, which confirms that the larger trend is down but also suggests that a corrective advance is around the corner. What’s more, the latest decline is probably a terminal thrust from a triangle. Resistance is at 9950. In the event of additional weakness, support is 9700 then 9650.

Published in Forex News
Tuesday, 16 November 2010 06:25

Japanese Yen Leading Diagonal Pattern

Contributed By: DailyFx

 120 Minute Bars


While the longer term picture remains constructive, the USDJPY is vulnerable over at least the next week. The rally from the low may be a completed diagonal, which warns of at least a decline back to 8165. The next level of potential resistance is 8400.

Published in Forex News
Tuesday, 16 November 2010 06:25

British Pound Secondary Top in Place

Contributed By: DailyFx


The GBPUSD is failing just ahead of its year+ resistance line. The line is at 16310 this week. For some time, I’ve favored the idea that a triangle is unfolding from the January 2009 low. If this is the case, then the GBPUSD should decline for months towards 15000 in wave d. Near term, the GBPUSD appears to have put in a secondary top at 16185.

Published in Forex News

Contributed By: DailyFx


The dollar index climbed smartly on Monday as the buck continued its journey higher, touching the highest level since October 1. The dollar was boosted early in the day by stronger than expected retail sales in the US, the recent string of better-than-expected data out of the US is calling into question if QE2 is warranted and how much will really be implemented. The index continued to gain late Monday as Treasury prices deepened their decline, pushing 10-year yields towards the highest level in three months follow a report that a Moody’s analyst said extending Bush tax cuts would be bad for the US credit rating. As Treasury prices tumbled US stocks erased the bulk of their gains with the positive sentiment that prevailed after the jump in retail sales getting knocked.

The index has come under some pressure in the over-night session as US Treasury prices climbed (and yields fall) after attracting some bargain hunting interest out of Asia with market players call the massive sell-off over the last two days as over-done. Adding to the pressure are Fed Yellen’s comments in a WSJ interview defending QE2 and with a generally bearish outlook for the US economy she stays in line with her generally dovish stance.

Published in Forex News

Contributed By: DailyFx

We have long argued that the Euro remained sharply overbought against the US Dollar through recent trade, and the threat of a speculative positioning unwind pointed to sharp EUR/USD losses. Debt-troubled Ireland saw its bond yields surge despite officials’ insistence that the country had not requested or needed immediate Euro Zone fiscal aid.


Speculation that Euro Zone officials were actively negotiating a fiscal aid package for Ireland only worsened bond yield spreads. Elsewhere, Austria’s Finance Minister announced that the country would be withholding its share of the Greek bailout package for the coming month due to Greece’s failure to meet deficit targets.

Though ostensibly unrelated to Ireland, Austria’s surprise move suggests that member states are growing increasingly tired of fiscal bailouts. There is little denying that such anti-bailout sentiment could further stoke fears of Euro Zone instability amidst surges in Irish, Portuguese, and Greek bond yields.

The uncertainty surrounding Ireland and other debt-ridden EMU countries seems to have been the impetus to cause a wave of position-covering in the Euro, and we see similar contractions in other leveraged markets.

A continuation of such market deleveraging threatens continued losses in the Euro, Australian Dollar, New Zealand Dollar, Canadian Dollar, and Swiss Franc. As of last week, CFTC Commitment of Traders data showed that Non-Commercial traders—typically large speculators—remained heavily net-short the US Dollar against these key currencies. We could see the US Dollar continue to recover as markets panic and cover overextended US Dollar short positions.


Published in Forex News

Contributed By: DailyFx

 Fundamental Outlook

Jobless claims in the U.K. are expected to rise 6.0K in October after climbing 5.3K the in September. At the same time, the unemployment rate is forecasted to remain unchanged at 4.5 percent, while the ILO unemployment rate during the three months through September is expected to show no change from the month prior. As public sector jobs and private employment likely scaled back during the month of October, market participants should not rule out a rise in the unemployment component.

It is worth noting that the jobs report may be overlooked as the Bank of England minutes will be released alongside the labor force change. The minutes are expected to display another three way split amongst committee members. Andrew Sentance will likely call for a twenty five basis point rate hike in interest rates, while Adam Posen will push for an extra 50 billion pounds in asset purchases as the U.K. economy will face increased major hurdles in the upcoming months amid tough austerity measures. With the split among committee members likely to widen in the upcoming months, the British pound may witness increased volatility, and additional calls for a rate hike will provide GBP support. Join me to cover both events live!

Technical Outlook

GBPUSD Daily Chart


GBPUSD: The pair has extended its two day decline during the overnight trade, but downside risks remain capped by the key 1.60 barrier. Meanwhile, technical indicators continue to point to further upside potential. The parabolic SAR signaled for gains on November 1st, and has yet to reverse course, while the MACD continues to point to further advancement in the pair. Indeed, our speculative sentiment index stands at 1.54 and signals for additional losses; however, I do not rule out a change sentiment in the near term as many traders as of late bet on a U.S. dollar rally.

Published in Forex News

Contributed By: DailyFx

 * Dollar Index Scores a Meaningful Bullish Breakout but European Issues, Risk Trends Still Blurred
* Euro Traders Look for Clarity on Ireland’s Future and the Future of the European Monetary Union
* British Pound Stifled by Disappointing Housing Data, Look for Clear Direction with CPI Data
* Japanese Yen: Why Did a Strong 3Q GDP Reading not Promote a Yen Rally?
* Australian Dollar Steady on Minutes that Show Concern over Inflation, OECD that Warns the Same
* New Zealand Dollar Sees Limited reaction to Strong Retail Sales Data thanks to Trading Conditions

Dollar Index Scores a Meaningful Bullish Breakout but European Issues, Risk Trends Still Blurred

Once again, the dollar put in for a significant and progressive price development. And yet, fundamental traders should be more suspicious of the greenback’s progress now than they were last week. Looking to the trade-weighted Dollar Index, we see that the benchmark currency was able to surpass a troublesome range high at 78.35. The monthly high this move presents certainly seems the next logical progression of a reversal that was jumpstarted after a quick dip to a low for the year. However, we can see the stain of doubt underlying this move despite the meaningful progress the day’s advance would imply. The first sign of uncertainty is found from the Dollar Index itself. After such a meaningful breakout, we would expect a significant increase in momentum to accelerate gains as traders are drawn into the development; but follow through was notably restrained. Another hitch to the greenback’s boundless recovery is the variation in progress across different pairs. While EURUSD has slipped below notable support (once again, lacking momentum) and USDJPY seems to be taking meaningful steps towards a larger advance; GBPUSD, USDCHF and AUDUSD are much further away from establishing conclusive reversals. Typically, when there is a mixed performance for a currency across its most liquid pairings, the confusion prevents definitive progress. And, venturing into the fundamental side of things, the greenback’s lack of momentum is consistent with the S&P 500 having yet to break from its two-and-a-half month rising trend channel.

All these factors taken into account, it should not be immediately concluded that the dollar’s bullish run is doomed for failure. Instead, it suggests that traders are simply more concerned with tangible fundamental catalysts rather than letting rampant speculation dictate activity levels. What is needed is a definitive shift in one (or more) of the more pervasive and influential trading themes. Effectively taking up the gauntlet of top fundamental driver from stimulus speculation, risk appetite trends now hold the greatest potential for the dollar’s advancement or retracement. This is why we make the regular reference to the health of the US equity market benchmark. Should there big an underlying shift in the balance of risk/reward, the stocks and other relatively-risky assets will be unloaded and safe havens will be scooped up. And, though the greenback’s shelter appeal has diminished significantly; when capital flows turn into torrents, the market will likely defer to historical norms. What can push equities into that tempting bear trend and subsequently leverage the dollar’s appeal? European financial uncertainties are at the top of the list. A crisis situation in this economy has very clear implications for investment trends; but even a move to bailout Ireland would further the dollar’s case. Such a move would be clear step towards government-backed support. The US isn’t the only government providing support…

Speaking of stimulus, we note a growing wave of dissension against the Fed’s decision to implement the second round of quantitative easing. While much of the grumbling comes from the speculative market and emerging markets, Fed member Lacker stated that he opposed the move as being potentially ineffective and even dangerous. Don’t expect the central bank to fold to pressure anytime soon though. In other news, data seemed to offer a bullish balance. Advanced retail sales were better than expected with a 1.2 percent improvement – cut to 0.4 percent excluding gas and auto sales. For some contrast, the Empire manufacturing index dropped to a July 2009 low.

Euro Traders Look for Clarity on Ireland’s Future and the Future of the European Monetary Union

Irish officials responded to growing fear of a national financial crisis and subsequent speculation of an impending bailout by stating simply that they had not filed for aid and the government was fully funded through mid-2011. Clearly, this reiteration does not provide investors with a sense of confidence. In fact, it is adding to regional troubles according to the ECB’s Ordonez. Leaving the market in a state of uncertainty balances Ireland between the tarnished reputation of having to look for additional funds and potentially leaving its banking system open to collapse. With that in mind, Prime Minister Cowen is expected to bring the topic up at Tuesday’s meeting of European leaders. In the meantime, Portugal’s Finance Minister lamented that his country is at high risk similar troubles and the EU revised Greece’s deficit to GDP ratio up significantly.

British Pound Stifled by Disappointing Housing Data, Look for Clear Direction with CPI Data

Not to be ignored, the Rightmove released an indicator that showed a 3.2 percent drop in house prices in October – the biggest since December 2007 – and the longest turnover time on record. However, the market easily ignored the weak figure. That said, traders won’t as readily disregard Tuesday’s CPI data. Speculation of stimulus and rate hikes top’s the pound’s personal list of fundamental concerns.

Japanese Yen: Why Did a Strong 3Q GDP Reading not Promote a Yen Rally?

Expectations for Japan’s 3Q GDP numbers were tame heading into the release of the data. Yet, when the economy reportedly grew 0.9 percent in the three-month period and 3.9 percent on an annualized basis – both much better than expected – the yen showed little response. This can be partly attributed to timing; but with the Japanese Economic Minister suggesting 4Q will show the mirror performance, optimism will be muted.

Australian Dollar Steady on Minutes that Show Concern over Inflation, OECD that Warns the Same

All signs point to further gains for the Australian dollar – except for risk appetite trends. Early Monday, the OECD issued a statement warning the RBA to remain vigilant on inflation pressures and the bank’s own minutes on Tuesday supported a sustained hawkish lean. However, rate hikes later down the line will be overlooked if investors abandon carry trades to fund maintenance margin on losses in other trades.

New Zealand Dollar Sees Limited reaction to Strong Retail Sales Data thanks to Trading Conditions

The economic docket was stocked for the New Zealand dollar very early Friday morning; and yet the data has ultimately very little reaction on the currency. Data released during early in Auckland’s trading session hit at a time when few other markets are online; and doing so prior to Monday’s open exacerbates the issue. Therefore, a 1.6 percent jump in retail sales was able to rouse little activity before risk trends set in.

Published in Forex News
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