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Caution Shows Signs Of Rising In Equities

Discussion in 'Forex Daily News & Outlook' started by mercaforex, Oct 27, 2009.

  1. mercaforex

    mercaforex New Member

    Jul 1, 2009
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    What started out as a cautious day in the currencies became rather fast paced as the American equity markets began to tumble. The USD finished the day with a strong gain against the EUR. The move didn’t take the greenback entirely away from its lows against the EUR, but its results will certainly remind traders that the driving force in the currencies is risk appetite. As Wall Street indexes dropped sharply, a wave of caution overtook the day. There were no major economic reports from the U.S. yesterday but quarterly earnings were published. Today the CB Consumer Confidence reading will be brought forth and is projected to have a number of 53.7, which would be slightly better than the previous data. Also the S&P/CS Composite-20 HPI will see light and is expected to show an improvement.
    It cannot be over emphasized just how much the USD is being affected by the movements on Wall Street. Having produced a losing week and after having a poor day yesterday will put the equity markets on a razor’s edge going into today’s session. Tomorrow is a big day of data with the Core Durable Goods and New Home Sales numbers on schedule. When this is coupled with the parade of corporate earnings it stands to reason that we could very well see volatility increase for the USD. Standing in the shadow is the Advance GDP number that will come on Thursday and it carries some lofty expectations. Optimistic traders in the stock markets have certainly had their day in the sun. This is the last week of trading for October, the psychology of the market is giving indications that it may be ready to shift. With so much important data on the way over the next couple of days and Wall Street crunching numbers too, it is clear that the USD could produce fireworks. If investors begin to become skittish about the gains they have enjoyed from Wall Street and believe that we are entering another downtrend, the USD could benefit.

    The EUR hit a road block on Monday and it was taken lower. The German GfK Consumer Climate number was reported and it had an outcome of 4.0, which was below the expectation of 4.5. However it would be naïve to say that this was the reason for the EUR suddenly losing ground to the USD. What happened to the EUR is that it ran directly into bourses that began to show not only signs of caution but downward momentum. The EUR has gained significantly against the USD the past few months on the heels of growing risk appetite and it still stands near the higher part of its range against the greenback. Today Europe will release its broad M3 Money Supply and Private Loans statistics. Tomorrow Germany will publish inflation data. Yet the overriding factor in the EUR will continue to be the amount risk sentiment being generated among traders who are watching the results from the international bourses. Thus, the EUR could be under a significant amount of dollar centric pressure.

    The Sterling managed to turn in a fairly stable day as trading came to an end. There were no major economic reports from the U.K. on Monday, but today the CBI Realized Sales will be released and give investors a glance into the mindsets of consumers. The reading is expected to improve to a number of 6 compared to the outcome of 3 in the previous month and traders will be paying attention to this important report. The GBP managed to hold onto its value yesterday even as the EUR was getting hammered by the USD. The reason the Sterling may not have taken the beating that the EUR did is because of the decline the GBP made on Friday. Negative news in one sense had already been factored into the Sterling because of the rather ugly Prelim GDP report that was publish before going into the weekend. The Nationwide HPI which was scheduled to be released today has been pushed back until at least Friday. Tomorrow will be a quiet day of releases, thus it is probable that investorswill tune in closely to the results of the CBI Realized Sales today and try to decipher just how rough an economic recovery will be for the U.K. to accomplish.

    The JPY lost some ground to the USD on Monday as international bourses began to decline. The JPY does remain at the stronger side of its range against the greenback, but in recent trading has begun to show signs of having its momentum slowed. Gold broke free from its consolidation yesterday and was taken lower as the USD gained against most of the major currencies. Gold finished the day around 1041.00 and should be monitored carefully.

    All Others Cower When The Mighty Dollar Roars

    The S&P 500 traded a 25 point range yesterday with a strong downward bias. As the Dollar finally rallied everything else finally came off. We started the day off with a small attempt to reach the top of the range, but that momentum was lost within the first hour of trading. As was discussed yesterday this week holds over 150 companies reporting earnings. Top that off with a lack of risk appetite and weak technical’s. We broke below support, and are well on our way of filling the next gap at 1057.5, that was set on October 7th. Support 1065.2, 1057.5, 1, 1040.1, 1020.3 Resistance 1073.2, 1081.5, 1086.2, 1095.8, 1101.4, 1132.2, 1153.8

    As the dollar strengthens it’s usually a given that Gold will fall. Yesterday the relationship held true, and we broke towards the lower region of the trading channel. Bouncing off the 1035.7 support level, we are only $5 away at the moment, and significant strength is not on the horizon. It will be critical for us to hold the next level of support at 1024. If not we could trade back below 1000 and even to $984. We are keeping a close eye on this precious metal, and monitoring it across the various time frames as it’s important to hold the neckline of the weekly head and shoulders formation we have discussed in recent weeks. Support 1035.7, 1024, 1009.65, 1006.2, 984.5 Resistance 1042.5, 1047, 1061.35, 1064.25, 1070.6

    The British Pound continues to surprise us, and while the dollar rallied the pound was able to hold support and continue to trade 2 cents higher. I am surprised at how well this currency is holding and it will test resistance of 1.6485. It is still imperative that we break over 1.6692 at some point in order to create new highs and really disqualify the down move. Be cautious as at the moment we are still trading a range, and the data coming out of the UK is not terribly promising. I would try and sell this market near the first resistance point with a tight stop. I think there is still good potential for a further breakdown, but will be monitoring the situation closely. I try and stand behind my philosophy of never getting in front of a moving train! Support 1.6327, 1.6239, 1.6125, 1.5919, 1.5776 1.5707 Resistance 1.6485, 1.6591, 1.6692, 1.6741.

    The Euro finally took a break from a nice solid up move, and broke below the trend line. We are currently able to hold support of1.4848 and I am looking for an opportunity to enter this market on the long side if it holds. It is important to consider the dollar when trading the Euro as the two have a relationship like a 14 year old girl and her single father. If dad goes left, daughter goes right. Anything below 1.4848 could be a pretty good sell with a profit target of around1.4676, and even potential for a prolonged move to 1.4480. Support 1.4848, 1.4761, 1.4676, 1.4480, 1.4377 Resistance 1.4985, 1.5062, 1.5083, 1.5144, 1.5284

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