Euro Suffers the Ire of the Financial Media as Investors Ferret Out Global Troubles

Aside from those pairings that pit it against distinct safe havens, the euro would ease lower into the final trading day of the week. Once again, the shared currency’s unique connection to the US dollar has put its fate in the hands of tomorrow’s US-based event risk. At the same time, the euro’s sensitivity to risk aversion contributed to its weak performance Thursday.
With investors concerned over the financial future of the European Union, we have seen media attention intensify surrounding the region’s short-comings. On the headlines today, was a Eurobarometer report that Europeans were the least confident in the EU in six years; German Finance Minister Schuaeble warned the market to moderate its expectation for German growth; and Spain could owe taxpayers anywhere between hundreds of millions to 5 billion euros. With the focus on ‘bad news’ the modestly lower yields on Irish sovereign bond auctions and uptick in German consumer confidence doesn’t look so encouraging.

Dollar Traders Will have to Determine Currency’s Safe Haven Role with Friday’s GDP Revisions, Bernanke Commentary

The economic docket was relatively light for the US dollar; but that wouldn’t prevent the currency from drifting off its fundamental mooring. The favored reserve fiat would put in for its second consecutive decline. Looking at the trade-weighted Dollar Index, the current pattern for price action looks very similar to the development from last week. Not surprisingly, the underlying market conditions that contributed to the brief retracement and general congestion back then are present now. It is first important to establish that the 48 hour decline from the greenback is not yet a bear trend. Rather, this move is more appropriately labeled as a correction that falls within a range that has developed through the week. The intraweek swings the currency has put in for this past week were short-term reactions to fundamental catalysts; but it has been a tangible struggle to gain a footing on a clear trend. We can trace this hesitancy back to underlying investor sentiment itself. Today, we see the Dow Jones Industrial Average slip below the 10,000 mark while keeping within the previous session’s coverage; and US-based crude oil reversed for a second day. In conjunction with the stalled EURUSD, this lax correlation between markets suggests risk appetite has tempered.

From today’s fundamental offerings, the lack of volatility (much less a trend) should not come as a surprise. On the docket, the initial jobless claims figures for the week through August 21st eased more than expected to a 473,000-annual clip. The positive implications this data may have had were summarily offset by the report that 310,000 filings were added to continuing claims owing to extended benefits – a poor reflection of the recovery effort by employment. The same questionable outcome is afforded to the MBA’s mortgage foreclosure reading for the second quarter which slipped from 4.63 to 4.57 percent; and yet it is still just off its record high. This data could easily be construed to support a bearish outlook; but the fundamental gravity heading into the end of the week is too great for this second tier data to significant alter traders’ expectations. Instead, the ranks are waiting to absorb and interpret tomorrow’s top event risk. On the docket, we have the revision of the second quarter GDP reading. Normally, the market’s interest stops with the first reading; but the magnitude of the expected revision and intensified speculation of a stalled recovery in the second half of the year has made this second reading perhaps more influential than the first. Given the disappointing housing, manufacturing and inventory developments over the past weeks; it shouldn’t surprise that there is talk of a 1.0 percent reading or lower. The other major event for the day is the Jackson Hole Symposium. A meeting of mind on monetary policy, this forum has been used to delivery forecasts in the past. There is fringe speculation that Bernanke may lower his growth outlook or event announce new stimulus.

For dollar traders, the outcome of this collective event risk is actually much more complicatedthan establishing whether it is good or bad for the economy. Normally, the impact this wave has on risk appetite would impact the dollar as a safe haven. Yet we have seen this role diminish somewhat recently as greenback has deviated from other capital markets. That said, the more panicked the crowd; the more they need shelter.

Forecast on Spot Gold (Spot Gold, NZDUSD, USDSGD)

Spot Gold

SPOT GOLD closed @ 12355 which was BELOW the open and was within prior day's trading range. The High was PRECISELY at Precise Trader's Res Zone 1 and the Low was PRECISELY at Precise Trader's Sup Tgt 1. The Hourly Oscillators are Bearish and the Price is Within the MA, so the Bulls have to be Sidelined. Hourly Trend is Turning Down while 12495 holds and Daily Trend is Limited Up while 12105 holds, so expect the price to Turn Down Soon, so the Bulls may stay Sidelined and the Bears get ready to pull the Trigger. The Daily Trend breached the Prior Day's High but the Bears gained towards the Close which signifies the high may have been seen. The Hourly Trend has been in a Range Trading with a Downside Bias,12410-445 are the Critical levels to watch to maintain the Bearish Outlook .On the 5 min is along the Horizontal Channel and the Patterns are suggesting a Choppy Session with a potential to Turn Down Soon. The Opening Price Principles are Mixed , so Cautious approach is needed until the price breaks out of Zone 1 levels.

BULLS: 12335 12205 12105 BEARS: 12415 12475 12525

Today's Strategies: Trade @ the Bears Levels Only.

NZDUSD

NZDUSD closed @ 7030 which was ABOVE the open and was within prior day's trading range. The High was 5 pips from Precise Trader's Res Zone 5 (U Turn Zone) and the Low was 5 pips from Precise Trader's Sup Zone 1. The Hourly Oscillators are Bullish but Weak and the Price is Within the MA, so CAUTIOUS approach is needed for the Bulls. Hourly Trend is Sideways while 6970 holds and Daily Trend is also Sideways while 7195 holds, so expect the price to be Choppy until Breakout. The Daily Trend breached the Prior Day's High marginally but the Bulls gave up partially towards the Close which signifies a Choppy Session with some Weakness in the First half of the Day. The Hourly Trend has been in a Range Trading with no Clear Direction, 6990-70 are the Critical levels to watch to maintain the Bullish Outlook . On the 5 min is along the Horizontal Channel and expect a Choppy Session until the break. The Opening Price Principles are Mixed , so Cautious approach is needed until the price breaks out of Zone 1 levels.

BULLS: 7020 6980 6930 BEARS: 7075 7125 7185

Today's Strategies: Trade @ the Bulls & Bears Levels Only.

USDSGD

USDSGD closed @ 13555 which was BELOW the open and breached the previous day's low. The High was 15 pips from Precise Trader's Res Zone 1 and the Low was PRECISELY at Precise Trader's Sup Zone 1. The Hourly Oscillators are MIXED and the Price is Within the MA, so CAUTIOUS approach is needed. Hourly Trend is Sideways while 13625 holds and Daily Trend is Limited Down while 13725 holds, so expect the price to be Choppy until Breakout. The Daily Trend was within the Prior Day's Range but the Bears gained towards the Close which signifies Choppy Session a Head. The Hourly Trend has been in a Range Trading , 13610-25 are the Critical levels to watch to maintain the Bearish Outlook . On the 5 min is along the Horizontal Channel and expect a Choppy Session until there is a Clear Break. The Opening Price Principles are Mixed , so Cautious approach is needed until the price breaks out of Zone 1 levels.

BULLS: 13525 13460 13400 BEARS: 13585 13640 13705

Weekly Market View

Overview

The rush into top-rated Treasury paper continues, new record low yields set for Swiss ten-year Conf (1.05%), Bund (2.09%), German 30-year (2.58%) and US ones (3.46%%), though Brazilian, Mexican and Russian benchmark yields are up from last week’s record lows. Equity indices are lower, many for a third consecutive week, the Nikkei 225 hitting a low at 8,807 and a weekly close just below key long term support at 9000. Only the Shanghai B share index bucked the trend with its biggest daily rally since November on speculation that it will be merged with the much larger domestic A-share market. Kuala Lumpur inched to its best level since February 2008 (just under the record high 1,521 of January 2008) and Jakarta set a new record at 3,150. The yen and Swiss franc gained against all currencies, another feature of the flight to safety, hitting 85.68 and 1.0220 per US dollar, EUR/CHF a new record low 1.2971. Commodities generally sidelined though 3-month LME Tin at $21,750 is at its most expensive in a year and Nymex Natural Gas at $3.825 per MMBtu cheapest since March and close to its lowest levels this decade.

Political and Economic Developments

A series of downbeat economic statistics from the US have reinforced the new reality many are staring at, which some call gloom. July Existing Home Sales dropped 27.2% M/M taking the annualised number of sales to a record low 3.83 million (from a peak of 7.25 million in 2005). Likewise New Home Sales dropped 12.4% M/M to an annual 276K, the lowest on record in a series going back to 1963. Admittedly the ending of government purchase incentives will have skewed sales, just as cash-for-clunkers brought forward car sales, so that many are now talking of further price falls; note that the average US home is worth $204K, the lowest since 2003 – seven years of depreciation to be written off. The Mortgage Bankers Association reported a small rise to 3.51% for mortgages 30 days past due, seriously delinquent (90 days overdue) 9.85%, and foreclosures 4.57% of all loans. Though Weekly Jobless Claims dipped to 473K from 504K (highest since November 2009) the prior week, obviously a rise here will have an effect on the ability to repay loans. There are suggestions that banks are being lenient, increasingly willing to modify and reclassify debt, because very low interest rates make this the easier option, something many have already done with commercial real estate – keep it as a performing loan for an annual cost of next to nothing rather than write-downs and repossessions.

Underlying Themes

Standard and Poors downgraded Irish sovereign debt one notch to AA- adding a negative outlook on worries that bank bailouts would require even more taxpayers’ money. Interestingly the Irish National Treasury Management Agency disagreed with their methodology. NAMA, the ‘bad’ bank created to offload dodgy debt from financial institutions to create ‘good’ banks refuses to disclose what assets it holds but rather worryingly the Irish Nationwide Building Society says it sold them €591 million with a 72% haircut. Ouch! Generally spreads over ten-year Bund yields have widened to new records, Greece 950 basis points, Ireland 371, Italy 168, Portugal 340 and Spain a not quite record 190.

What to watch for next week

Monday 30th August UK Bank Holiday though the UK’s Hometrack August Housing Survey is out, Eurozone Confidence, US July Personal Income and Spending, plus Core PCE. Tuesday Japan July Industrial and Vehicle Production, Retail Trade, Labour Cash Earnings, Housing Starts and Construction Orders, plus August Small Business Confidence. UK July Money Supply and Consumer Credit, August GFK Consumer Confidence, German Unemployment, EZ16 CPI and July Unemployment, US June CaseShiller House Prices, August Chicago Purchasing Managers, Consumer Confidence and Minutes of the FOMC meeting. Wednesday 1st September, Japanese August Vehicle Sales, Manufacturing PMI’s for various European countries, UK Halifax House Prices, US Challenger Job Cuts, ADP Employment Change, Manufacturing ISM, Vehicle Sales and July Construction Spending; Sweden’s Riksbank starts a two-day rate-setting meeting (some expect a 25 basis point rise to 0.75%). Thursday UK August Nationwide House Prices, Construction PMI, EZ16 Q2 GDP, July PPI, the ECB decides on rates (unanimously expected unchanged at 1.00%), US Q2 Unit Labour Costs, July Factory Orders and Pending Home Sales. Friday Japan Q2 Capital Spending, UK August Services PMI, EZ16 July Retail Sales, US August Non-Farm Payrolls and Unemployment, then Non-Manufacturing ISM. Monday 6th September Labour Day holidays in Canada and the US.

Positioning and Technical Analysis

Summer will be over by the 7th of September and the feel is very much back to school and back to work. And what are we facing? Much the same mess as we did at this time in 2008. Banks are a varied lot, some producing results suggesting they are in rude health, most looking like the walking wounded and some, zombies that even the most creative accountant cannot help. Not surprisingly interbank trust remains at zero, cash parked overnight at central banks, top-ranked paper yielding record low rates. Next, who needs yet more money and where will it come from? Who can cut or is so desperate they must cut spending?

Growth fears weigh on euro

Currency markets can be moody. Immediately after the release of the weak US labour market report last Friday, EUR-USD rose by 1.5 cents to over 1.33. But after the Open Market Committee decided that, given the disappointing economic recovery, the proceeds from maturing agency bonds and mortgage-backed securities held by the Fed should be used to purchase additional Treasury bonds, the euro began to lose ground.
On Thursday, EUR-USD dropped below 1.28, and was around this level towards the end of the week. USD-JPY fell to a 15-year low of 84.73 initially, but then recovered to just under 86.

The movement in the currency market shows a return to the familiar pattern seen during the financial crisis: once again, bad news from the US prompted a widespread flight from risky assets (equities, commodities, credit products) back into safe havens. Government bonds and gold are much in demand. In the forex market, the dollar and the yen benefit particularly from crisis fears.

Oddly enough, it was the FOMC meeting and not the labour market data, that sparked these market reactions, even though, after the release of the US labour market report, it had been widely expected that the Fed would take action.

The measure taken by the US central bank is not at all aggressive, quite the contrary in fact. The Fed is only using principal payments to purchase 2 to 10-year US Treasuries, thus keeping the balance sheet at $2054bn. Monetary policy is not becoming more expansionary, but remains as expansionary as it was before. Real concern about a double dip or a deflationary scenario would have prompted a different reaction.

Furthermore, the amounts concerned are relatively modest: in spring, the New York Fed had estimated the total volume of bonds due to mature by the end of 2011, or already paid back prior to maturity, at “at least $200bn”. For the first month (mid-August to mid-September) the central bank is envisaging reinvesting $18bn. In relation to the Fed’s balance sheet and public net borrowing, which are set to reach well over $1000bn in 2010 and 2011 respectively, the reinvestments seem almost puny.

The hefty market reaction might have been triggered by the rather pessimistic outlook of the Bank of England in its latest inflation report and slightly worse-than-expected economic data from China, suggesting that the growth outlook for Europe (and the rest of the world) might not be as rosy as originally predicted. This, combined with heightening fears of deflation in the US, probably tipped sentiment in the markets. In view of the previous gains of the euro and other European currencies against the dollar and on equity markets, market participants decided to take profits.

In our view, the growth concerns are still exaggerated. Although economic momentum in the US is now slacker than in earlier recovery phases, the economy is still expanding. Current consensus estimates are forecasting growth rates of just under 3% for 2010/11, the Fed’s forecasts were significantly higher in July. Final domestic sales rose markedly in Q2 for the first time, both ISM indices are still showing an increase in economic activity, and, according to the quarterly reports, most companies see their business outlook as positive. We therefore see no reason to throw in the towel.

The European data give no cause whatsoever for undue scepticism. The Q2 growth figures, which have just been released, show that GDP in the eurozone rose by 1.0% quarter-on-quarter.
Growth was largely driven by Germany, where, according to preliminary figures, GDP grew by a stupendous 2.2% compared to the previous quarter. This, together with solid figures from France, the Netherlands and Belgium, more than compensated for the weak results in the southern eurozone countries, where growth was curbed by fiscal austerity measures. Thus overall, there has been an improvement in production capacity utilisation. And the leading indicators as well as anecdotal evidence from companies do not suggest a setback.

Against this backdrop, we are inclined to regard the euro’s current weakness against the dollar as a correction. In the longer term, we still see the euro above 1.30. Market participants should keep a close watch on US economic data in particular.
They should also bear in mind that money market rates in the eurozone will probably continue to rise in the coming months and that a strong dollar is hardly in the interests of the US economy.

US labour market report sends dollar to new lows

Market participants’ assessment of the economic outlook, and of course the direction of monetary policy (the Open Market Committee is holding its next meeting on Tuesday) will probably be influenced by the US labour market figures, which were published today. Beforehand, markets had been bracing themselves for a disappointment. They were particularly worried that the increase in private sector jobs, which had only been moderate as it was, might have ground to a halt, forcing the Fed to resort to more quantitative easing.

Thus the dollar’s slide continued this week: the ICE US Dollar Index Futures fell below its 200- day moving average. By mid-day on Friday, the euro had gained almost 2 cents against the dollar, rising to just under 1.32, and rose to over 1.33 after the release of the US employment data. The dollar also fell against the yen, which climbed to an 8-month high of 85.15. Only the Swiss franc was as weak as the dollar this week. EUR-CHF rose from 1.35 at the end of last week to over 1.38 – despite signs that the SNB was selling some of its bloated foreign currency reserves.

The July US labour market data were indeed disappointing: employment declined by a total of 131,000. Although new jobs in the private sector rose by 71,000, this pales to insignificance compared with the 252,000 job cuts in the public sector, which far outnumbered the Census-related job losses (143,000). The significant downward revision of the June figures by almost 100,000 to –221,000 also had a negative effect. Here the additional job cuts were divided evenly between the public and the private sector.

Nevertheless, we are still not expecting the FOMC to send out any new monetary policy signals on Tuesday. The Fed is likely to maintain its expectations of a moderate recovery with a gradually improving labour market, but is likely to emphasise the risks and uncertainties a bit more than in June. Otherwise, the committee will probably merely reiterate its intention of maintaining its exceptionally expansionary monetary policy for an extended period.

On the whole, we are not expecting the other economic data due to be released next week to bring any unpleasant surprises. The US trade balance deficit will probably have widened again in June, but this information is actually already contained in the Q2 GDP figures. Eurozone Q2 GDP data, released next Friday, could have a positive impact on the euro. Here expectations are quite high, however. And furthermore, not even the ECB’s more hawkish comments have been able to boost the euro much recently.

Growth fears weigh on euro

Currency markets can be moody. Immediately after the release of the weak US labour market report last Friday, EUR-USD rose by 1.5 cents to over 1.33. But after the Open Market Committee decided that, given the disappointing economic recovery, the proceeds from maturing agency bonds and mortgage-backed securities held by the Fed should be used to purchase additional Treasury bonds, the euro began to lose ground.
On Thursday, EUR-USD dropped below 1.28, and was around this level towards the end of the week. USD-JPY fell to a 15-year low of 84.73 initially, but then recovered to just under 86.

The movement in the currency market shows a return to the familiar pattern seen during the financial crisis: once again, bad news from the US prompted a widespread flight from risky assets (equities, commodities, credit products) back into safe havens. Government bonds and gold are much in demand. In the forex market, the dollar and the yen benefit particularly from crisis fears.

Oddly enough, it was the FOMC meeting and not the labour market data, that sparked these market reactions, even though, after the release of the US labour market report, it had been widely expected that the Fed would take action.

The measure taken by the US central bank is not at all aggressive, quite the contrary in fact. The Fed is only using principal payments to purchase 2 to 10-year US Treasuries, thus keeping the balance sheet at $2054bn. Monetary policy is not becoming more expansionary, but remains as expansionary as it was before. Real concern about a double dip or a deflationary scenario would have prompted a different reaction.

Furthermore, the amounts concerned are relatively modest: in spring, the New York Fed had estimated the total volume of bonds due to mature by the end of 2011, or already paid back prior to maturity, at “at least $200bn”. For the first month (mid-August to mid-September) the central bank is envisaging reinvesting $18bn. In relation to the Fed’s balance sheet and public net borrowing, which are set to reach well over $1000bn in 2010 and 2011 respectively, the reinvestments seem almost puny.

The hefty market reaction might have been triggered by the rather pessimistic outlook of the Bank of England in its latest inflation report and slightly worse-than-expected economic data from China, suggesting that the growth outlook for Europe (and the rest of the world) might not be as rosy as originally predicted. This, combined with heightening fears of deflation in the US, probably tipped sentiment in the markets. In view of the previous gains of the euro and other European currencies against the dollar and on equity markets, market participants decided to take profits.

In our view, the growth concerns are still exaggerated. Although economic momentum in the US is now slacker than in earlier recovery phases, the economy is still expanding. Current consensus estimates are forecasting growth rates of just under 3% for 2010/11, the Fed’s forecasts were significantly higher in July. Final domestic sales rose markedly in Q2 for the first time, both ISM indices are still showing an increase in economic activity, and, according to the quarterly reports, most companies see their business outlook as positive. We therefore see no reason to throw in the towel.

The European data give no cause whatsoever for undue scepticism. The Q2 growth figures, which have just been released, show that GDP in the eurozone rose by 1.0% quarter-on-quarter.
Growth was largely driven by Germany, where, according to preliminary figures, GDP grew by a stupendous 2.2% compared to the previous quarter. This, together with solid figures from France, the Netherlands and Belgium, more than compensated for the weak results in the southern eurozone countries, where growth was curbed by fiscal austerity measures. Thus overall, there has been an improvement in production capacity utilisation. And the leading indicators as well as anecdotal evidence from companies do not suggest a setback.

Against this backdrop, we are inclined to regard the euro’s current weakness against the dollar as a correction. In the longer term, we still see the euro above 1.30. Market participants should keep a close watch on US economic data in particular.
They should also bear in mind that money market rates in the eurozone will probably continue to rise in the coming months and that a strong dollar is hardly in the interests of the US economy.

EURUSD Trading Strategy

Trading strategy: small short at 1.3030, stop at 1.3090 (0.5% risk), objective at 1.2930

The euro found support at 1.2800 after the free fall from 1.3300 but the ongoing recovery is not convincing. Former support at 1.3000 will probably provide resistance if the euro continues to climb from here, and a daily close above 1.3000 should be a decent confirmation of uptrend resumption on short-term basis. Technically the uptrend is intact, despite the 500 points decline. Today’s most notable events in the economic calendar are the German GDP which came at 2.20% vs 1.30% expected, followed by the U.S. Retail Sales and CPI later today. Current quote is 1.2892 @06:07 GMT

Support: 1.2800/30, 1.2730, 1.2600 and 1.2500
Resistance: 1.2900, 1.3000, 1.3100 and 1.3250
Market sentiment: long term – bearish, medium term – slightly bullish, short term – slightly bearish, intra-day – slightly bullish

Index Recommended Levels

Dow Jones :
Resistance(daily close) : 9382.12, 9744.26, 10 091.30, 10 935.23, 11 164.57, 344.92 and 11 520.30. Then 11 749.22, 11 970.00, 12 152.82, 12 600.24, 12 982.20, 13 162.50 and 13 320.00. Break of the latter will lead to 13 567.60, 13 668.74 and 13 792.53 (published on October 21, 2008).
Support (daily close): 9630.33 and 9358.35(main), 9090.00, 8912.62 (published on November 10, 2009).

Today’s support: - 10246.54(main), where a delay and correction may happen. Break of the latter will give 10214.70, where correction also can be. Then follows 10172.18. Be there a strong impulse, we shall see 10148.50. Continuation will bring 10110.75.
Today’s resistance: - 10360.25, 10400.63 and 10451.40(main), where a delay and correction may happen. Break would bring 10533.11, where a correction may happen. Then follows 10586.22, where a delay and correction could also be. Be there a strong impulse, we’d see 10631.20. Continuation would bring 10707.38 .

S&P500

Support: - 1074.38( main). Break will give 1070.75 where correction could be. Then follows 1063.13, where correction could also be. Be there a strong impulse, we would see 1058.68. Continuation will lead to 1050.85.
Resistance: - 1091.27, 1102.50, 1115.62 and 1128.23(main), where a correction may happen. Break would result in 1138.08, where correction may also be. Then 1147.46. Be there a strong impulse, we would see 1153.12. Continuation will lead to 1157.47.

NASDAQ

Support : - 2160.00(main). Break will give 2150.90, where correction could be. Then 2144.56, where correction could also be. Be there a strong impulse, we would see 2137.44. Continuation will lead to 2128.32.
Resistance : - 2205.15 and 2216.30(main), where the correction could be. Break will bring 2228.53, where the correction may also happen. Then 2240.80. Be there a strong impulse, we would see 2252.40. Continuation will lead to 2261.27.

GOLD

Support: - 1203.72, 1192.50, 1187.41 and 1180.22(main). Break of the latter will give 1167.30, where a correction is possible. Then 1158.80, where a correction is also possible. Be there a strong impulse, we would see 1152.12. Continuation will bring 1144.46.
Resistance: - 1220.35(main), where a correction may happen. Break would bring 1226.24, where a correction may also happen. Then follows 1232.20. Be there a strong impulse, we’d see 1237.46. Continuation would bring 1241.58.

SILVER

Support: - 17.73(main).where correction is possible. Break of the latter would give 17.55, where correction may happen. Then goes 17.30, where correction can also be. If a strong impulse, we would see 17.19. Continuation would give 17.08.
Resistance : - 18.18, 18.44, 18.63 and 18.71(main), where correction is possible. Break will lead 18.81, where again may be a correction. Then follows 18.97. If a strong impulse, we would have 19.16. Continuation would give 19.35.

USD Sees Gains Against Most Majors

USD Dollar (USD) – The Dollar gained against most of the majors before the FOMC statement and trimmed part of the profits after the Interest Rate Decision which came out unchanged at 0.25% as expected. The FED said that the pace of economic recovery is slower than expected. The Stock Markets in the U.S. finished negative with the Dow Jones losing 0.51% and the NASDAQ tumbling by -1.24%. Crude Oil fell by 1.5% to $80.20 a barrel. Gold (XAU) closed with a small gain after falling to $1190 zone but recovered and closed at $1203 an ounce. Today, the Trade Balance is expected at -42.5B vs. -42.3B previously. The Federal Budget Balance (Treasury Budget) is expected at -167.6B vs. -68.4B previously.

EURO (EUR) – The Euro weakened against the dollar in Forex Trading, breaking the 1.31 zone but jumped back to 1.32 zones after the FED in U.S announced a continuation of measures to stop the economic slowdown. As the Asian markets opened it dragged back the Euro to 1.31 areas. The German CPI came out 0.3% better than the expected 0.25%. Trading below the support level of 1.3130 keeps the momentum negative for the pair. Overall, EUR/USD traded with a low of 1.3073 and with a high of 1.3232. No economic data is expected today. EUR/USD – Last: 1.3122

British Pound (GBP) – The Pound lost gains to the dollar reaching the 1.57 zone but jumped back to 1.59 zones after the FED interest rate decision. As the Asian markets opened, it dragged back the Sterling to 1.58 areas. The Trade Balance came out -7.4B better than the expected -7.7B. Nationwide Consumer Confidence came out at 56, worse than the expected 60. Trading below the support level of 1.5830 keeps the momentum negative for the pair. Overall, GBP/USD traded with a low of 1.5708 and with a high of 1.5906. Today, the Claimant Count Change is expected at -17.4k vs. -20.8k previously and later BoE Gov King will speak regarding the Inflation Report. GBP/USD - Last: 1.5811

Japanese Yen (JPY) – The Yen gained versus the dollar and back to 85 zones. The global recovery slowing boosted demand for the safety of Japan’s currency. The Interest Rate Decision came out as expected at 0.1%. Breaking the support level of 85.30 turns the momentum to negative for the pair. Overall, USD/JPY traded with a low of 85.16 and with a high of 86.24. Today, Monthly Report of Recent Economic and Financial Developments will be updated. USD/JPY-Last: 85.33

Canadian dollar (CAD) – The US Dollar gained versus the Canadian dollar as the Federal Reserve said it will take new measures for economic growth in the U.S. The Housing Starts came out 189k better than the expected 185k. Holding above the support level of 1.03 keeps the momentum positive for the pair. Overall, USD/CAD traded with a low of 1.0265 and with a high of 1.0387. Today, the Trade Balance is expected 0.4B vs. -0.5B previously. USD/CAD - Last: 1.0319

Daily Analysis

AUDUSD - Bears slided below support, at the moment look for selling options while candlesticks stay at current level.

EURUSD - Bears did manage to plunge under support barrier, despite the current neutral situation look for selling possibilities.

EURGBP - Bears trying to overtake bulls strength by declining the price below support level. However, neutral situation stays active.

NZDUSD - Support barrier is still strong enough to hold bearish movement. Waiting action holds for now.

USDCAD - Bulls trying to recover after bearish strength, if bulls can manage to breakout at resistance, look for buying options and positive trend.

Stock Up on Absorbent Socks For Safety

If there's even a chance that harmful substances could leak or spill at your business, stocking up on absorbent socks is a smart idea. These specially designed socks are filled with absorbent materials that can clean up liquid spills fast, even if they're oily or contain potentially hazardous materials.

Small spills or minor leaks in a mechanic's shop, at a factory, on a farm or at a medical facility may be handled with absorbent pads. Yet when fast clean up is a must to prevent damage or the spread of harmful substances, a spill sock is the right tool to use.

To make the most of the opportunity socks present for easy, efficient and effective clean up, it's important to choose the right type. If you're primarily concerned about potential spills containing hazardous materials, choose a specially designed hazmat sock.

Hazardous material spills can endanger people and the environment, contaminate or destroy property and result in fines by OSHA or the EPA if they're not managed properly. Stocking up on hazmat socks is the responsible solution to the problem of potential hazardous spills or leaks.

If you're primarily concerned about cleaning up oil as in the case of a large mechanic's or machine shop, you should have absorbent socks designed for petroleum based liquid clean up on hand. You can choose a sock that will absorb only oil if you're concerned about potential spills occurring in water. This means the oil will be absorbed for removal from water.

General, all purpose spill socks are the type most commonly required for commercial or residential clean up. These socks will absorb a variety of types of liquids, including contaminated or regular water. If you're concerned about what a potential water leak could do in terms of property destruction, this is the sock you should have at hand. These socks can also be used to help clean up excess water that's been used in fire control or during flooding.

Spill socks can help ensure your workplace or your home stays safe from the damage liquid spills can cause. When spills happen, socks can minimize damage by containing and stopping the spread of liquid. They're an affordable solution for oil leaks, minor flooding and containment of even hazardous liquids.

You can find and buy quality absorbent socks easily online for fast delivery. You can also easily restock your supply as needed so they're always available to handle spills.

Overnight News

• European bourses are trading higher playing catch up with the recovery late Friday on Wall Street

• News of a potential higher inflation forecast in BOE’s upcoming inflation report saw an early test of barriers at 1.6000 in GBP/USD

• Markets look forward to the FOMC rate decision tomorrow with further alarms sounded for QE2
  

ASIA

JGBs gained overnight, with futures rising towards a seven-year peak, after US Treasuries surged on weakerthan- expected US jobs data that stoked expectations of monetary easing by the Federal Reserve. Nikkei fell 0.7% in very thin trade after jobs data signalled the US economic recovery was flagging and fanned talk that the Federal Reserve may consider further policy easing at a meeting this week. Strength in the JPY weighed on exporters after the USD approached a 15-year low against the JPY on Friday following the payrolls data, according to market players. (RTRS)

In other news, China extended a record buying spree of Japanese debt in June as sovereign debt concerns buffeted the EUR, purchasing a net USD 5.9bln of short-term bills although it was a net seller of longer dated notes. (RTRS)

Elsewhere, the introduction of additional stimulus measures in China would cause over capacity, asset bubbles and drive speculation and price surges in the property market, according to deputy head of the financial institute of the State Council’s Development Research Centre. In other news, China’s economy will enjoy a strong, stable second half, putting it on course for full year growth of about 10%-11%, according to the head of the Development Research Centre, Zhang Yutai. Also, former Chinese central bank deputy governor Wu Xiaoling said the nation shouldn’t introduce additional stimulus measures. (People’s Daily/ Shanghai Securities News)

US

The Federal Reserve is set to downgrade its assessment of US economic prospects when it meets on Tuesday to discuss ways to reboot the flagging recovery. Faced with weak economic data and rising fears of a double-dip recession, the Federal Open Market Committee is likely to ensure its policy is not constraining growth and to use its statement to signal greater concern about the economy. It is, however, unlikely to agree big new steps to boost growth. Smaller measures to help the economy could initially take the form of a decision to reinvest proceeds from maturing mortgage-backed securities held by the US central bank, thereby preventing the Fed’s balance sheet from shrinking naturally. (FT FrontPage)

In other news, the US economy will improve slowly and another round of fiscal stimulus wouldn’t be effective, according to former Treasury secretaries Paul O’Neill and Robert Rubin. (Sources)

Elsewhere, Goldman Sachs revises US growth forecast and sees US real GDP growth to average 1.5% at an annual rate in H2. Co. previously forecasted growth to rise from 2.5% in Q1 to 3.5% by H2. Co. says they now look for a more gradual pickup-from 1.5% in Q1 to 3% in Q4. The 2.5% Q4/Q4 average is about 0.9% points below the previous forecast. Says annual average basis of their forecast for growth in 2011 drops to 1.9% from 2.4% and says expects jobless rate to rise to 10% by early 2011 and remain there for the rest of the year.
Elsewhere, Barclays revises GDP outlook for Q3 to 2.5% from 4%. (CNBC)

Also, new US whistleblowing incentives within the Dodd-Frank financial reform act – that could net informants multimillion dollar pay-outs – are likely to generate a surge in allegations against US-listed companies and Wall Street banks, lawyers say. (FT)

Currencies Trading Strategy

EUR/USD. Rally Intact

EUR/USD (1.3263) is down slightly overnight, but after showing signs of stalling last week, the uptrend appears intact after Friday’s strong rally.

Technicals:

• Trend: Daily lower; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly neutral.

• Support / Resistance Levels: Support for EUR/USD lies at 1.30 (psychological), 1.2733 (Jul 21 low), 1.2152 (Jun 29 low), 1.1877 (Jun7 low), 1.1827 (Mar’06 low), and 1.1640 (Nov’05 low). Resistance lies at 1.3334 (Aug 6 high), 1.3692 (Apr12 high), 1.3818 (Mar17 high), 1.4026 (Feb3 high), 1.4194 (Jan25 high), 1.4579 (Jan13 high) and 1.4626 (Nov low).

Positioning:

• The CFTC net long, non-commercial position rose to -13.6K last week, consistent with the ongoing rally in spot. The position is at the top of its six-month average, suggesting a potential top in price action.

• The risk reversal (3m, 25delta) rose overnight along with spot. The reversal is still heavily skewed for EUR downside, but it has rallied sharply towards the top of its six-month range – suggesting the rally is increasingly at risk of stalling or failing.

• Implied Vol (3m) rose overnight, but it remains in the bottom-third of its six-month range.

Cross-asset valuation: The significant correlations that EUR/USD has exhibited during the past 60 days are the US10yr yield (positive) and the SPX (positive).

GBP/USD. Stalling at 1.60 - still

Cable (1.5956) is up overnight, but it remains stalled at 1.60, where it has been stuck since early last week.

Technicals:

• Trend: Daily lower; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly overbought.

• Support/Resistance Levels: Resistance lies at 1.5999 (Aug9 high), 1.6284 (Jan22 high), 1.6458 (Jan19 high), 1.6479 (61.8% retracement of Nov to Dec decline), 1.6722 (Dec 3 high), 1.6878 (Nov16 high) and 1.7043 (Aug high). Support lies at 1.50 (psychological), 1.4949 (Jun12 low), 1.4239 (May19 low) and 1.3503 (Jan’09 low).

Positioning:

• The CFTC net long, non-commercial position rose to -8.4K last week, consistent with the rise in spot. The net position is trending higher and lies near the top of the 6-month range, suggesting a potential top in price action.

• The risk reversal (3m, 25delta) rose overnight along with spot, and it remains near the high since Feb. While it remains skewed for GBP losses, it is also in the upper end of its six-month range, which suggests an overbought condition.

• Implied Vol (3mo) rose overnight but remains near the low since Sep 2008.

Cross-asset valuation: The significant correlates over the past two months for GBP/USD have been the DXY (negative) and EUR/USD (positive).

USD/CHF. Channeling a downtrend

USD/CHF (1.0399) is up overnight but continues to trade a modestly downtrending channel formation in place since early-Jul.

Technicals:

• Trend: daily lower; weekly lower.

• Overbought/Oversold (stochastics): Daily oversold; Weekly oversold.

• Support/Resistance levels: Resistance lies at 1.0641 (Jul27 high), 1.0676 (Jul12 high) and 1.1742 (Apr’09 high), while support lies at 1.0332 (Aug6 low) and 1.0131 (Jan low).

Positioning:

• The CFTC net long, non-commercial position rose to 15.1K, a new high since 2009. Such an extreme position suggests a potential bottom in USD/CHF.

• The risk reversal (3m, 25delta) fell overnight despite the rise in spot. This market segment has abandoned its bullish USD/CHF call, but the skew is extreme, suggesting potential for a rally in spot.

• Implied Vol (3mo) is up overnight, above multi-year lows.

Cross-asset valuation: USD/CHF has correlated mostly strongly during the past 60 days with EUR/USD (negative) and the USD index (positive).

USD/CAD. Rebound is testing downtrend

USD/CAD (1.0288) is up overnight, holding near the highs of Friday’s sharp, post employment rally. Price action is now testing the downtrend in place since early-Jul.

Technicals:

• Trend: Daily lower; weekly lower.

• Overbought/Oversold (stochastics): Daily oversold; weekly neutral.

• Support/Resistance Levels: Resistance lies at 1.0307 (Aug 9 high), 1.0584 (Jul16 high), 1.0677 (Jul5,6 high), 1.0680 (Jun high), 1.0853 (May25 high) and 1.1725 (Jul’09 high). Support lies at 1.0108 (Aug5 low), 0.9931 (Apr21 low), 0.9825 (May’08 low), 0.9712 (Feb’08 low), 0.9058 (Nov’07 low).

Positioning:

• The CFTC net long, non-commercial position rose to 33.3K last week. The move is from the bottom half of the six month range, and could suggest that spot will rebound from here.

• The risk reversal (3m, 25delta) rose overnight along with spot. It is trending lower deep into the bottom half of the six-month range, consistent with the move lower in spot but also warning of a potential reversal.

• Implied Vol (3m) rose slightly overnight and looks to be testing the downtrend in place since May.

Cross-asset valuation: In terms of other assets correlating with USD/CAD, watch the SPX (negative), CRB (negative), crude oil (negative), and the 2yr spread (negative).

USD/JPY. Pinned near lows

USD/JPY (85.57) is up overnight, rebounding slightly from the new low since Nov’09 established Fri. However, the downtrend continues. Further weakness is likely to provoke a policy response from Japanese officials, but the case for a rally is also weak.

Technicals:

• Trend: Daily lower; Weekly lower.

• Overbought/Oversold (stochastics): Daily oversold; Weekly oversold.

• Support/Resistance Levels: Support lies at 85.02 (Aug6 low) and 84.83 (Nov27 low). Resistance lies at 88.12 (Jul28), 89.16 (Jul12 high), 92.89 (Jun4 high) and 94.99 (May4,5 high).

Positioning:

• The risk reversal (3m, 25delta) remained relatively steady overnight. The skew is still in favor of USD/JPY downside, but lies in neutral territory relative to its range the past six months.

• Implied vol (3m): rose overnight but remains deep into the lower half of its 6-month range.

Cross-asset valuation: The correlations of USD/JPY with the US 10yr yield (positive) and the S&P500 (positive) are significant.

AUD/USD. Uptrend continues

AUD/USD (0.9188) inched higher overnight. It remains within the uptrend in place since early-Jun.

Technicals:

• Trend: Daily higher; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly neutral.

• Support/Resistance: Technical support lies at 0.8634 (Jul19 low), 0.8316 (Jul1 low), 0.8067 (May25 low) and 0.7704 (Jul’09 low). Resistance for AUD/USD exists at 0.9222 (Aug6 high), 0.9389 (2010 high), 0.9406 (2009 high), and 0.9850 (2008 high).

Positioning:

• The CFTC net long, non-commercial position rose to 49.1K. It is trending up and lies in the middle of the six-month range, suggesting no impediment to further strength.

• The risk reversal (3m, 25delta) rose overnight. It continues to trend higher in the middle of its 6-month range.

• Implied Vol (3m) fell overnight and continues to trend lower below the middle of its range for 2010.

Cross-asset valuations: AUD/USD has correlated most strongly with equities (S&P500, positive), commodities (CRB, positive) and the DXY (negative.)

NZD/USD. Wedging against July high

NZD/USD (0.7299) is down overnight. It continues to trade higher lows, but the daily highs remain stalled below 0.74.

Technicals:

• Trend: Daily higher; Weekly higher.

• Overbought/Oversold (stochastics): Daily overbought; Weekly overbought.

• Support/Resistance: Resistance lies at 0.7397 (Jul27 high), 0.7442 (Jan14 high), 0.75247 (Nov high), and 0.7635 (Oct21 high). Support lies at 0.72 (psychological), 0.7030 (Jul19 low), 0.6795 (Jul1 low) and 0.6561 (May25 low).

Positioning:

• The CFTC net long, non-commercial position rose to 15.0K last week. It is now in the upper reaches of its six-month range, suggesting an elevated chance that the rally since Jun is over.

• The risk reversal (3m, 25delta) slipped overnight, but it is trending higher above the middle of its six-month range.

• Implied Vol (3m) fell overnight. It is stabilizing in the bottom third of its six-month range.

Cross-asset valuations: The strongest correlates for NZD/USD during the past two months have been AUD/USD (positive), stocks (S&P500, positive), the DXY (negative) and commodities (CRB index, positive).

Intraday Market Outlook for Day Traders

EUR/USD
Starting the week in very low volatility during all of Asian trading hours today, the pair continues to consolidate its higher levels in the European morning and is currently at 1.3265. We do not expect much activity today but a slight bidding tone, bringing the market up to levels around 1.3325.

GBP/USD
Cable is trading right now at the lower end of its trading band in the European morning, at 1.5950. We see the downside risk limited at 1.5925 for today, from where some recovery moves could set in, up to 1.5985.

USD/CHF
The slighty stronger dollar this European morning is currently trading at 1.0402 against the Swiss franc. We see this market losing some minor ground today, to the 1.0345 mark.

USD/JPY
The dollar gained a little territory against the yen in thin Asian market hours today, priced right now at 85.60 in early European trading. We expect down moves, to levels around 85.30.

Intraday Market Outlook for Day Traders

EUR/USD
In low volatility this European morning, the pair is moving directionless, currently at 1.3165. We do not expect any significant change for today in the market's behavior and project a sideways trend with a slight selling tone, between levels of 1.3190 and 1.3155.

GBP/USD
Some selling has put cable down to 1.5857 right now in early European trading. While we see no aspect for much further downside risk (1.5825 at the most), we expect the upside to be limited as well, at 1.5875.

USD/CHF
A quiet summer market has put the dollar to sleep in the European morning, priced at this moment at 1.0486 against the Swiss franc. We expect this level to be defended more or less today, in a bandwidth between 1.0490 and 1.0455.

USD/JPY
After a short upswing against the yen in late Asian trading, the dollar is currently trading slightly downwards again, at 86.05 now in the European morning. We expect more of the downmove to come today, to levels around 85.75.

Overnight News

ASIA

JGBs dipped overnight, with futures handing back earlier gains, amid jitterish trade ahead of closely watched US jobs data later in the day that is expected to set the direction for a market that has scaled steep peaks this week. Nikkei edged down 0.1%, after an unexpected rise in weekly US jobless claims underscored the economy’s weakening and sent Wall Street lower a day before the monthly US payrolls report. (RTRS)

In other news, Japanese Prime Minister Kan said he is closely watching the economy’s performance to see if fresh stimulus is needed, as worries that the world’s second largest economy is losing steam. (RTRS)

US

Christine Romer, one of President Obama’s top economic advisers, is stepping down, an exit that comes as the White House struggles to keep the recovery on track with Congressional elections looming in November. (RTRS)

In other news, foreign central bank’s ownership of US Treasuries rose by USD 6.456bln to USD 2.326trl in the week ended August 4. Also, the US Federal Reserve’s balance sheet increased slightly USD 2.309trl on August 4 compared with USD 2.308trl on July 28, according to the Fed. (RTRS)

The march to lower yields continues

Overview

The march to lower yields continues, now coupled with the weakening of the US dollar. Excessive buying of the greenback in the six weeks to mid-June have now been unwound, the Euro hitting a high at $1.3334, dollar/yen a new low for this year at 85.07, the Singapore dollar almost matching its record low at 1.3440, and this weeks best performer the South Korean won at 1160. Benchmark US two-year TNotes’ yield dipped to a new record low 0.513%, UK five-year likewise at 1.97%, foreign currency Brazilian and Russian bonds at new record lows of 2.56% (USD 2014) and 4.65% (EUR 30-year). Five-year maturities are outperforming, flattening that part of the curve while long-dated paper remains out of favour steepening the back end; ten-year JGB’s touched 1.00% their lowest since 2003. US Treasury Inflation Protected Securities (TIPS) out to 2015 now have negative yields of up to 49 basis points; 2.5% 2016 Index-Linked Gilts yield just 7 basis points. Note that US CPI is currently running at +1.1% Y/Y, Japanese prices excluding fresh food –1.0%, so that US Treasury real rates are mostly negative while Japanese ones are some of the few yielding a real 2.00%. Stock indices rallied on average by 2.00% this week, Germany, Helsinki, Mumbai, Singapore and Sweden inching to new highs for this year, easing from here this afternoon. Commodities generally rallied, a combination of dollar weakness and weather related (see below).

Political and Economic Developments

Eagerly anticipated US employment figures out today showing joblessness remained at 9.5% but as census workers were laid off a total of 131K jobs were lost, June’s losses revised up by 96K to a loss of 221K jobs. Weekly Unemployment claims hinted as such, edging up to 479K, just under the 490K that has capped since November 13th and well above July’s 427K floor. A total 14.6 million Americans are now unemployed, 44% for over six months. Flat June earnings and consumer spending unusually remained steady as Americans save rather than shop. From a rate of roughly 2% to 4% since 1999, and 0% to 2% between 2005 and 2008, they are now saving 6.4% as they did in the late eighties. Deleveraging de rigueur.
The Bank of England, ECB and Reserve Bank of Australia left rates unchanged at 0.50%, 1.00%, 4.50% respectively.

Underlying Themes

Nature, and more specifically the weather, has unleashed just some of her infinite powers on the world this year, reminding us how fragile life is. From earthquakes, volcanoes and oil spills, now heat waves and floods. Summer temperatures in the North East of the USA and across Europe have been unusually high, Moscow hitting a record 39 degrees Celsius and triggering forest fires which have blanketed the city in thick smoke. Wheat exports have been cancelled, Ukraine and Kazakhstan hard hit too, traders declaring force majeure and front month futures on the CBOT hitting 841 cents per bushel (almost double June’s level), dragging Oats (297) and Corn (425) in its wake. One weather station in Ireland recorded its wettest summer since measuring began in 1950 and the heaviest monsoon rains in eighty years flooded vast areas of Pakistan killing 1,600, rendering four million homeless. Since mid-July the worst rainstorms in a decade batter southern China, 1,100 dead or missing and 3M evacuations.

What to watch for next week

Monday Japan June Current Account, July Money Supply and Bank Lending, Bankruptcies, Economy Watchers’ Survey, German Trade Balance and Eurozone August Sentix Investor Confidence. Tuesday UK July RICS House Price Balance, DCLG June House Prices and Trade Balance, the Bank of Japan sets rates (expected unchanged at 0.10%) as July Machine Tool Orders are released, then US Small Business Optimism, June Wholesale Inventories, Q2 Unit Labour Costs and Non-Farm Productivity as the Fed decides on monetary policy (rates expected unchanged at 0.25% but watch for possible Quantative Easing steps). Wednesday Japan June Machine Orders, July Domestic CGPI, UK Nationwide Consumer Confidence, Unemployment, June Average Earnings and ILO Unemployed, the Bank of England’s Quarterly Inflation Report, US June Trade Balance and July Monthly Budget Statement. Thursday Japan July Consumer Confidence, US Import Price Index and EZ16 June Industrial Production. Friday the 13th German and Eurozone Q2 GDP, EZ16 June Trade Balance, US Business Inventories, July CPI, Retail Sales and August University of Michigan Confidence Survey.

Positioning and Technical Analysis

We continue to feel that rather than a quiet month August will see trends develop and more chaotic conditions predominate. Many top-rated bonds should see yields tumble to new record lows, those of dubious quality likely to suffer another hit as holders are forced out. The increasingly glaring spread between the two will become the domain of specialist firms only as credit committees relegate these to speculative status. The move to generalised US dollar weakness should continue and possibly gather pace as those returning from holiday are forced to take remedial action. Stock markets will probably be subject to increasingly violent intra-day swings.

Fundamental Perspective

The market expects that a U.S. report will reveal today, that the number of U.S. lost jobs increased for a second month. Yesterday, a report showed that initial jobless claims rose 19,000 to 479,000 in the week ended in the past month, which is the most since April. This could set the Federal Reserve under pressure to take extra steps to keep borrowing costs low. On top of that Nobel Prize-winning economist Joseph Stiglitz criticized that the U.S. economic recovery is “anemic” and demanded for a “better-designed” stimulus package. As a result of that the USD is close to a weekly decrease versus 15 of its 16 most-traded counterparts. The JPY traded near to an eight-month high against the USD and was at 85.85. Economists prognosticated that a German report will indicate industrial production rose for a fourth month. Even European Central Bank President Trichet is astonished about the fast recovery in Europe. Trichet said that the interest rate is appropriate and will therefore stay at a record low at 1 percent. Based on that the EUR was close to a three month high against the USD and traded at 1.3182. The EUR/USD already gained 11 percent after it had reached a 4 year low in June.

Australia’s currency was close to a three month high versus the USD. The AUD/USD climbed 1.2 percent this week and traded at 0.9150. The Reserve Bank of Australia will release today its quarterly statement on monetary policy whereat the economists do not expect any changes in central bank’s growth and inflation prognoses. New Zealand’s currency is close to a second weekly los versus the JPY. The NZD/JPY was at 62.66 and the NZD/USD traded at 0.7299.

Based on speculations that a report today will show that jobs were added in July for a seventh straight month, Canada’s currency strengthened to a two-month high versus the USD. The USD/CAD already fell 2.6 percent since July 20th and traded at 1.0108.

Index Recommended Levels

Dow Jones :
Resistance(daily close) : 9382.12, 9744.26, 10 091.30, 10 935.23, 11 164.57, 344.92 and 11 520.30. Then 11 749.22, 11 970.00, 12 152.82, 12 600.24, 12 982.20, 13 162.50 and 13 320.00. Break of the latter will lead to 13 567.60, 13 668.74 and 13 792.53 (published on October 21, 2008).
Support (daily close): 9630.33 and 9358.35(main), 9090.00, 8912.62 (published on November 10, 2009).

Today’s support: - 10620.18, 10608.14 and 10573.32(main), where a delay and correction may happen. Break of the latter will give 10528.37, where correction also can be. Then follows 10485.00. Be there a strong impulse, we shall see 10445.63. Continuation will bring 10417.50 and 10378.13.
Today’s resistance: - 10682.86 and 10707.38(main), where a delay and correction may happen. Break would bring 10726.87, where a correction may happen. Then follows 10753.22, where a delay and correction could also be. Be there a strong impulse, we’d see 10787.76. Continuation would bring 10802.82.

S&P500

Support: - 1113.63 and 1102.50( main). Break will give 1093.64, where correction could be. Then follows 1080.00, where correction could also be. Be there a strong impulse, we would see 1063.13. Continuation will lead to 1058.68.
Resistance: - 1128.23(main), where a correction may happen. Break would result in 1138.08, where correction may also be. Then 1147.46. Be there a strong impulse, we would see 1153.12. Continuation will lead to 1157.47.

NASDAQ

Support : - 2280.10 and 2271.50(main). Break will give 2263.33, where correction could be. Then 2238.80, where correction could also be. Be there a strong impulse, we would see 2226.50. Continuation will lead to 2217.30.
Resistance : - 2300.52(main), where the correction could be. Break will bring 2314.68, where the correction may also happen. Then 2325.45. Be there a strong impulse, we would see 2340.09. Continuation will lead to 2354.14.

GOLD

Support: - 1187.41 and 1180.22(main). Break of the latter will give 1167.30, where a correction is possible. Then 1158.80, where a correction is also possible. Be there a strong impulse, we would see 1152.12. Continuation will bring 1144.46.
Resistance: - 11203.80(main), where a correction may happen. Break would bring 1209.20, where a correction may also happen. Then follows 1215.00. Be there a strong impulse, we’d see 1220.35. Continuation would bring 1226.24.

SILVER

Support: - 18.17 and 17.96(main).where correction is possible. Break of the latter would give 17.82, where correction may happen. Then goes 17.73, where correction can also be. If a strong impulse, we would see 17.55. Continuation would give 17.30 and 17.19.
Resistance : - 18.40, 18.63 and 18.71(main), where correction is possible. Break will lead 18.81, where again may be a correction. Then follows 18.97. If a strong impulse, we would have 19.16. Continuation would give 19.35.

Daily Outlook

I was always a little nervous of the bullish call with the expectation for a general reversal high in the U.S. Dollar. Yesterday's failure to extend gains and slip lower through what appears to be a support line from the 0.8904 is threatening a deeper reversal lower. A break of yesterday's 0.9115 low would increase that pressure and below the 0.9094 low then confirm follow-through to 0.9053-70. Take care as this could cause a reaction but overall I feel the downside should then extend to the 0.8966-89 area at least. Expect a correction there before the next leg lower to retest the 0.8904 low...

If instead this manages to break back above the 0.9182 high then I'll have to rethink the situation. Assuming this comes with general U.S. Dollar losses it would tend to resurrect the bullish structure for a rally through 0.9233 and to 0.9270 minimum - more likely the 0.9301-27 resistance before a correction. After that is over we should well see a test of the 0.9390-16 area - where the weekly corrective highs rest...

Medium Term Outlook

6th August:

Much depends on today I think - if this does break lower as I am now beginning to suspect then the 0.8966-89 and 0.8904 areas are the next major supports with the lower level quite likely to cause a correction. There's also support at the 0.8850 pivot area.

.

If the 0.9182 high breaks it will swing things back in favor of the rally for 0.9270 & 0.9301-27 en route the 0.9390-16 area which should pause the move.

EUR/USD upside capped at 1.3200 area

Euro bullish attempt witnessed at European session opening time has been short lived, and after reaching session high at 1.3205, the pair has reversed to levels right below 1.3175 session low, yet trading half way through the weekly range, from 1.3120 and 1.3260.

Below 1.3175, the pair might find support at 1.3120/35 (Aug 4/5 lows) and 1.3100/05 (Jul 29 high). On the upside, resistance levels lie at 1.3195/05 (session highs) and above here, 1.3235/40 (Aug 4/5 high) and 1.3260 (Aug 3 high).

Index Recommended Levels

Dow Jones :
Resistance(daily close) : 9382.12, 9744.26, 10 091.30, 10 935.23, 11 164.57, 344.92 and 11 520.30. Then 11 749.22, 11 970.00, 12 152.82, 12 600.24, 12 982.20, 13 162.50 and 13 320.00. Break of the latter will lead to 13 567.60, 13 668.74 and 13 792.53 (published on October 21, 2008).
Support (daily close): 9630.33 and 9358.35(main), 9090.00, 8912.62 (published on November 10, 2009).

Today’s support: - 10608.14 and 10573.32(main), where a delay and correction may happen. Break of the latter will give 10528.37, where correction also can be. Then follows 10485.00. Be there a strong impulse, we shall see 10445.63. Continuation will bring 10417.50 and 10378.13.
Today’s resistance: - 10682.86 and 10707.38(main), where a delay and correction may happen. Break would bring 10726.87, where a correction may happen. Then follows 10753.22, where a delay and correction could also be. Be there a strong impulse, we’d see 10787.76. Continuation would bring 10802.82.

S&P500

Support: - 1102.50, 1093.64, 1080.00 and 1063.13( main). Break will give 1058.68, where correction could be. Then follows 1051.90, where correction could also be. Be there a strong impulse, we would see 1047.22. Continuation will lead to 1038.63.
Resistance: - 1128.23(main), where a correction may happen. Break would result in 1138.08, where correction may also be. Then 1147.46. Be there a strong impulse, we would see 1153.12. Continuation will lead to 1157.47.

NASDAQ

Support : - 2271.50, 2263.33, 2238.80 and 2226.50(main). Break will give 2217.30, where correction could be. Then 2210.62, where correction could also be. Be there a strong impulse, we would see 2205.18. Continuation will lead to 2194.36.
Resistance : - 2295.00(main), where the correction could be. Break will bring 2314.68, where the correction may also happen. Then 2325.45. Be there a strong impulse, we would see 2340.09. Continuation will lead to 2354.14.

GOLD

Support: - 1167.30, 1558.80 and 1152.12(main). Break of the latter will give 1144.46, where a correction is possible. Then 1137.25, where a correction is also possible. Be there a strong impulse, we would see 1131.70. Continuation will bring 1126.41.
Resistance: - 1192.50(main), where a correction may happen. Break would bring 1198.13, where a correction may also happen. Then follows 1203.80. Be there a strong impulse, we’d see 1215.00. Continuation would bring 122263.

SILVER

Support: - 18.17 and 17.96(main).where correction is possible. Break of the latter would give 17.82, where correction may happen. Then goes 17.73, where correction can also be. If a strong impulse, we would see 17.55. Continuation would give 17.30 and 17.19.
Resistance : - 18.54 and 18.63(main), where correction is possible. Break will lead 18.81, where again may be a correction. Then follows 18.97. If a strong impulse, we would have 19.16. Continuation would give 19.35.

Forex: EUR/GBP rebound from 0.8266 stretches above 0.8300

The British currency was denied to move further down, after investors started to show more support towards the Hegemonic currency in the European trading session. The pair has presently recovered over 40 pips to the upside, jumping above 0.8300.

Earlier on, EUR/GBP was propelled to the downside, reaching an intra-day low at 0.8266, but far from reaching a fresh 1-month low at 0.8247 first touched on Monday. Over the last 2 hours, the course drifted north, driving the pair to 0.8310, as the Euro pared yesterday's losses.

Resistance is likely to be found at the following levels “0.8350/60~ * congestion, mid range, 0.8325 2 Aug high ahead of 0.8300 current 3 Aug high. Support may be taken at 0.8252 2 Aug low, 0.8242 * 61.8% Jul rally ahead of 0.8217 2 Jul low” commented the 4CAST analysis team.

Gold bulls reduce their exposure

With global stock markets heading for the best monthly performance since last July, gold has found it increasingly difficult to hold onto recent gains.

The MSCI World index which monitors stocks from around the world rose more than eight percent during July as better economic and corporate data helped sentiment. Consumer confidence readings are still on the low side which continues to indicate a bumpy recovery ahead. Robert Schiller, a well known professor at Yale University, sees the risk of a US double dip recession as being above 50 percent.

The positive sentiment from stocks, where more than 77 percent of companies in the S&P 500 Index reported earnings above expectations, helped drive the yield on corporate bonds to a six year low. This according to Bloomberg triggered a record USD 85.7 billion issuance of debt in July with investors snapping up the relative high yield compared to governments bonds.

The Reuters Jefferies CRB index rose 1 percent on the week and returned 4 percent in July, the best monthly performance since May 2009. Gains were recorded across different sectors. The best performing markets were sugar, coffee, wheat, natural gas and palladium with losses in other energies and gold pulling in the opposite direction.

The price of gold dropped below the May low and has come close to the important 200 day moving average support at 1,150. This is the level that many long term investors view as the level that needs to hold. The speculative long position on Comex has been reduced by 27 percent over the past three weeks and another reduction is expected this week. Meanwhile Gold held in Exchange Traded Funds also saw a reduction albeit only by one million ounces, a mere 1.5 percent of total known holdings.

The next couple of weeks will be very important as to the near term direction of gold. The worry is that a move below 1,150 could trigger a much larger correction than the 100 dollars seen so far. Supportive news this week was a pick-up in physical demand with jewelers taking advantage of the recent drop in the price of both gold and the dollar. The strength of the global recovery is still debatable as the Yen, often viewed as a safe haven, strengthen against the dollar and the euro.

Technically 1,150 on spot gold should provide strong support followed by 1,124 while resistance levels are 1,176 and 1,185.

During this recent sell off silver has managed to outperform gold which is unusual during a correction phase as silver tends to get hurt more due to lower liquidity. Meanwhile platinum is still finding support both outright and on a relative basis to gold with the ratio indicating further support near term.

Investors’ love affair with Palladium continues having rallied ten percent during July and despite the violent sell off in May shows a year to date return of 19 percent. Spot palladium has now recovered more than 50 percent of the May sell off trading at 490 dollars per oz. and as such should find resistance towards 505 where either profit taking or a switch into platinum could be viewed as reasonable suggestion.

Crude oil continues to trade sideways having failed to find any traction recently. A weaker dollar and higher equity market has been offset by worries that that the global recovery will not be strong enough to boost demand. The weekly US crude inventory data showed another surprise increase, this time by 7.3 million barrels versus an expected drop of 1.7 million.

One of the reasons behind this surge in inventory was triggered by record imports into the Gulf of Mexico region as crude came onshore from floating storage. Profits from storing crude oil for future delivery has almost disappeared as forward prices have dropped. Last year up towards 100 million barrels was kept on floating storage but this has now dropped to around 10 million. Since April the spread or Contango between the two nearest futures contracts has dropped from 4.58 dollars down to 45 cents today removing the profitability of this strategy.

Technically WTI crude oil for September delivery is stuck in a wide 72.60 to 81.00 range with the latter being 50% retracement of the May sell off. Inside this range further resistance can be found at 79.70 and support at 75.90.

Talk of another global food crisis has begun to emerge on the back of the heat wave that has hit Russia, Kazakhstan and Ukraine this past month. Temperatures have reached highs that have not been seen since record began 130 years ago and so far the damaged crop area covers some 103,000 square kilometer or 25.5 million acres. In Chicago wheat futures have had the biggest monthly gain since 1973 while European milling wheat have rocketed by 40 percent this month reaching a high of 194.50 Euro per metric tons.

Analysts fear prices could rise further in the coming weeks as the region continues to cut its estimated wheat crop production. Being the third largest exporter globally any news of a reduced crop will increase prices from other regions as fewer countries will compete for export tenders. The International Grains council has revised global stockpiles down by 2.5 percent to 192 million metric tons by June 2011 reversing a forecast for higher inventories just last month.

While this uncertainty persists technical levels have little use as momentum and fear more than anything drives prices. September wheat on CBOT trades close to the November 2009 high at 639.75 but whether that will provide any resistance remains to be seen. Weather forecast from Europe, Russia and even Canada, where they are struggling with too much rain, will be watched closely as any signs of change should remove some of the recent support.

The price of the high quality Arabica coffee future rose more than six percent on the week, reaching a 12 year high at 178.75 dollars per pound due to a tight supply situation stemming from a step drop in Columbian production. Tightness in the spot market could persist until an expected record Brazilian crop hits the market in a few months time.

Forecast on Spot Gold , NZD/USD, USD/SGD

Spot Gold

SPOT GOLD closed @ 11685 which was ABOVE the open and breached the previous day's high. The High was 1.5 Dollars from Precise Trader's Res Zone 1 and the Low was 0.5 Dollars from Precise Trader's Sup Tgt 1. The Hourly Oscillators are MIXED and the Price is Below the MA, so CAUTIOUS approach is needed. Hourly Trend is Limited Down while 11775 holds and Daily Trend is also Limited Down while 12085 holds, so expect the price to have a Minimum Downside and the Bears have to be Cautious. The Daily Trend was within the Prior Day's Range and the Bulls gained mildly towards the Close . The Hourly Trend has been in a Range Trading with a Limited Downside Bias,11735-775 are the Critical levels to watch to maintain the Bearish Outlook .On the 5 min is along the Horizontal Channel and the Patterns are suggesting a Choppy Session with a potential to Turn Up Soon. The Opening Price Principles are Mixed , so Cautious approach is needed until the price breaks out of Zone 1 levels.

BULLS: 11580 11450 11360 BEARS: 11715 11805 11865

Today's Strategies: Trade @ the Bulls & Bears Levels Only.

NZDUSD

NZDUSD closed @ 7240 which was BELOW the open and breached the previous day's low. The High was PRECISELY at Precise Trader's Res Zone 1 and the Low was 10 pips from Precise Trader's Sup Tgt 2. The Hourly Oscillators are Bearish but Weak and the Price is Below the MA, so CAUTIOUS approach is needed for the Bears. Hourly Trend is Limited Down while 7295 holds and Daily Trend is Limited Up while 7105 holds, so expect the price to have a Minimum Downside and the Bears have to be Cautious. The Daily Trend breached the Prior Day's Low and the Bears gave up mildly towards the Close . The Hourly Trend has been in a Range Trading with a Limited Downside Bias, 7280-95 are the Critical levels to watch to maintain the Bearish Outlook . On the 5 min is along the Steep Down Channel and the Patterns are suggesting a Choppy Session until there is a Clear Break . The Opening Price Principles suggests that NZD is Weak against most Crosses but should be Limited so Cautious approach is needed.

BULLS: 7190 7135 7085 BEARS: 7265 7325 7365

Today's Strategies: Trade @ the Bulls & Bears Levels Only.

USDSGD

USDSGD closed @ 13635 which was BELOW the open and was within prior day's trading range. The High was 30 pips from Precise Trader's Res Zone 1 and the Low was 10 pips from Precise Trader's Sup Tgt 1. The Hourly Oscillators are Bearish but Weak and the Price is Within the MA, so CAUTIOUS approach is needed for the Bears. Hourly Trend is Limited Down while 13725 holds and Daily Trend is also Limited Down while 13805 holds, so expect the price to have a Minimum Downside and the Bears have to be Cautious. The Daily Trend was within the Prior Day's Range but the Bears gained towards the Close . The Hourly Trend has been in a Range Trading with a Limited Upside Bias, 13690-13725 are the Critical levels to watch to maintain the Bearish Outlook . On the 5 min is along the Horizontal Channel and the Patterns are suggesting a Choppy Session until there is a Clear Break. The Opening Price Principles are Mixed , so Cautious approach is needed until the price breaks out of Zone 1 levels.

BULLS: 13590 13540 13480 BEARS: 13665 13705 13765

Today's Strategies: Trade @ the Bulls & Bears Levels Only.

The Brief Daily Forecaster

This pair has the knack of doing what is least expected when in a consolidation phase. Therefore, until the 1.0394 high is broken I would prefer to remain neutral. However, to retain a bullish outlook I do feel the 1.0330-43 area is important. While it holds there remains the risk that we could see direct follow-through above 1.0394 which would extend gains to the1.0441-61 area followed by a correction and final move to the 1.0494-02 resistance. Also note 1.0527 and the 1.0585 high.

If this actually breaks below 1.0330 it will raise the risk of follow-through lower again. However, I'd still prefer a break of the 1.0298 low that would provide the catalyst for a decline to the 1.0255 low and probably beyond to the 1.0200-20 area for a correction before the final move to the 1.0134-43 target.

Medium Term Outlook

29th July:

The erratic and whippy price development continues. Either we'll see a move down to the 1.0138 area before a recovery or the rally will resume directly above 1.0394 to 1.0470-90 initially but then to 1.0585-06 en route the 1.0851 high. Both are forms of triangle, the first symmetrical and the second ascending...

.

Below 1.0130 would target the 0.9929 low... above 1.0851 is required to break the weekly consolidation.