Wednesday, November 4, 2009

GLOBAL OUTLOOK Cheat Sheet 11/04: Stocks Rally, Gold, Oil Soar


- Stocks: Tuesday: Asia down, Europe, down, US up, Wednesday morning Asia, Europe up

- FX: Higher equities, bias against safety currencies [JPY, USD, CHF in order of safety appeal] in favor of risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], USD gains against all majors except for JPY,

- Main events today: AUD: Building Approvals, Retail Sales, GBP: Halifax HPI, Services PMI, USD: ADP NFP, ISM Non-Mfg PMI, FOMC St., Fed Funds Rate, Crude Oil Inventories, NZD: Employment Change q/q, Unemployment Rate

- Big Theme: Falling risk appetite – normal retest or the next leg down back to November or March support? See Conclusions below for trading opportunities as many assets approach or breaching key levels. Light news Tuesday produced small moves except for gold and oil arising from special events (SEE BELOW) News-packed Wednesday. TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION, MARKET REACTION TO NEWS WEDNESDAY-FRIDAY TO DECIDE


US: The S&P 500 was able to net a modest gain in Tuesday's trade, albeit once again on a last minute bargain buying on low overall volume, hardly the kind of rally that suggests high upside potential

Asia: Up on thin, cautious bargain hunting trade ahead of key news items over the next 3 days, including major central bank statements and employment figures in the US and elsewhere

Europe: European stock index futures fell on Tuesday, pointing to a weaker start for equities after Swiss lender UBS posted poor quarterly results and UK's Lloyds Banking Group expected pretax loss for 2009.

ASIA- DOWN N225I -2.31% HS -1.76 % SSEC +2.71 FTSTI -0.90% AORD -2.16 %

EUROPE DOWN FTSE -1.18% DAX -1.43% CAC -1.52%

US- UP S&P +0.24% DJIA -0.18% NASDAQ +0.40%


N225I +0.42% HS +1.76 % SSEC +0.46 FTSTI +0.78% AORD +1.24 %

FTSE +0.78% DAX +1.07% CAC -1.52%

Oil: Tuesday: Crude oil fell to below $77, then rose following gold's sharp rally to over $79.50, ignoring mixed to lower stocks. Wednesday: -- Oil prices fell slightly to near $79 a barrel Wednesday in Asia despite an unexpected drop in U.S. crude supplies which suggested demand may be picking up. The Energy Information Administration is scheduled to release its supply data later on Wednesday. Although crude normally follows equities, yesterday it decoupled from stocks and followed gold higher "We still feel that a decline toward the $75 area could be forthcoming as this week proceeds," Galena, Illinois-based Ritterbusch and Associates said in a report.

Gold: Showing a rare decoupling from equities, soaring higher as stocks struggled, due to India's central bank's 200 tonne bullion purchase from the IMF stirs speculation that more is coming from other central banks and sovereign wealth funds.

CURRENCIES: Bias risk currencies due to overall rise in stocks. FX trade today will move with how stocks react to the major news events mentioned above. USD losing ground Wednesday against most crosses.

USD: Down against higher yielding currencies as equities post slight rise and both oil and gold rise sharply. Falling Wednesday morning as equities, gold and oil continue rising. Big USD news event day ahead could move it strongly either up or down. We maintain our 1m EURUSD forecast at 1.45.

EUR: - Dropping slightly against the USD Tuesday, rising with stocks gold, and oil against the USD. likely to move today based on the major USD news, because there is no major EUR news. We remain short EURUSD as a trade recommendation as noted above.

JPY - BoJ Governor Shirakawa will speak at an economic forum in Tokyo where we expect he will echo recent comments that the BoJ is committed to maintaining accommodative policies for a while even as the economy recovers. We remain cautious on JPY performance and look for USDJPY to remain choppy around 90 in the near-term.

GBP – Gained on the USD. The very important Services PMI is due this morning, and a surprise in either direction could move the pound. After that it will likely move as a risk asset based on how the cluster of major USD news affects risk sentiment

AUD: While building approvals were slightly better than expected, the critical monthly Retail Sales data was much worse, -0.2% vs. a forecasted +0.5%. If employment figures are also weak, the RBA might consider deferring or decreasing rate increases until recovery looks more solidified. While retail sales and then the subsequent jobs reports will be major factors in the RBA's next decision, expect one more 25bp hike in December. AUD will likely remain closely linked to risk sentiment for the balance of the year.

NZD: Gaining slightly against the safe haven currencies as it moves up with the small gains in equities on Tuesday. Rising Wednesday

CAD: As expected, gaining ground against the USD as oil and stocks rise.

CHF: Following overall risk sentiment, which in equities has been down/mixed, thus the CHF has been in a tight range.

CONCLUSIONS: Proceed w/ caution waiting until trend clarifies before entering new positions as S&P 500 sits at near term support. Bias still towards seeking risk aversion plays, but JPY and USD vs. riskier currencies when these breach resistance or support., short oil gold when breach support. See below for specific opportunities with CRUDE, GOLD, EURUSD, NZDUSD, and AUDUSD

Trading Opportunities: Near term favors SAFE HAVEN currencies, shorting risk assets.. Thus: 1. be prepared to play a pullback in risk assets and get ready to sell stock indexes, commodities, and risk currencies, buying USD, JPY. 2. Trade the near term horizontal trading ranges that should hold until major news causes a change in risk appetite. 3. Those continuing to take long positions in risk assets should consider tight sell stops, though gold and crude may be approaching new breakouts. Crude oil breaches key $74 resistance, implying more upside unless stocks pull back on earnings disappointments. Always use sell stop orders.

GOLD: Continuing to make multi-year highs independent of movements in equities, purely on speculation that other central banks and other large buyers may do the same. Difficult to predict the extent or duration of such a sentiment driven move into new territory. However, if news over the remainder of the week is strongly bearish for equities, it is difficult to see how oil and gold could continue to rise. Inflation would not be seen as a threat, thus undermining further gold advances. Crude inventories remain high, so there is no immediate problem with supplies that might drive oil higher, especially if the recovery picture does not improve.

Crude Oil: Following the speculative rush into gold following India's central bank bullion purchase despite stocks struggling. Next resistance is at $82. The combined price support around $77 has held over the past week. If the series of key news items over the next 3 days does not cause any surprises, then we might expect crude to trade within this $77-82 range. Positive surprises could cause crude to challenge the $82 level, and disappointments, especially in those related to unemployment, and could pressure it towards $77 and below. If the FOMC surprises with a more dovish than expected statement, that would weaken the USD and thus help crude, whereas a more bullish FOMC wording could push the USD up and pressure oil. Watch the S&P and gold to see how news is affecting the markets and crude.

WTI Crude Oil Daily Chart

02 Nov 04

EURUSD: Continues holding just above strong support level of $1.4700 (50 day MA + 23.6% Fibonacci retracement from its June rally, also lower BB band around 1.4657). Look to play a break above this if there is bullish news to at least 1.4845, the high of the past few days, or if more bad news or drops in global equities, a break below to at least the lower Bollinger Band at around 1.4653, next support at around 1.4600, a convergence of past price support AND just above the 38.2% Fibonacci retracement from the June rally at 1.4565 . If gold and oil continue to move up on speculative pressure independent of equities, that movement could pressure the USD and drive this pair higher. Similarly, if gold and oil drop back the USD should strengthen and pressure the pair lower, though much depends on what equities are doing at the time.


02 Nov 03


Background: Arguably one of the most overbought pairs because it moved up with the AUDUSD even though New Zealand's economic fundamentals and recovery story was not nearly as compelling as Australia's. Thus when the current pullback began, it was very vulnerable and came in hard and broke strong support near the $0.7250, where both its 50 day MA AND 23.6% Fibonacci retracement converged. Currently sitting on multiday support around 0.7160, it is currently falling (despite positive Labor Cost index q/q data this morning) and testing this level as Asian stocks pull back, apparently unimpressed by Wall Street's last minute rally on below average volume.

Recommendation: No real support until $0.7077, at which level we have a convergence of both a minor price support level from September and the 38.2% Fibonacci retracement. No major NZD or USD news Tuesday, so this will move with overall market sentiment, which is currently down in Asia. However Wednesday is packed with top events in both the US and NZ (see Summary-Key Events at the top) to virtually guarantee volatility.

To play the further drop, entry near current levels as shown on the chart below while sufficient profit potential remains before the $0.7077.

To play the upside, wait until stocks start climbing on some substantially positive news that could sustain a multi-day bounce, and the pair breaks above $0.7160. Wednesday's packed calendar should provide clarification of the trend until Friday's US NFP comes out.

As noted above, if gold and oil continue to move up independently of moves in equities, that could pressure the USD and drive this pair higher. Similarly, if gold and oil drop back the USD should strengthen and pressure the pair lower, though much depends on what equities are doing at the time.

NB: See a daily chart of the AUDUSD, and note the similarity. Those seeking to trade this pair could apply the above mentioned indicators and comments.

NZDUSD Daily Chart

03 Nov 04


Fed Likely to keep key interest rate at record low

Oil falls to near $79 despite US crude supply drop- AP

Disney says China approved Shanghai theme park- AP

GM board decides to keep European Opel unit- AP

Auto sales show industry beginning to stabilize- AP

Rising commodities, deal making lift stocks- AP

Sprint laying off part of wholesale division- AP

Oil prices rise as Fed meets on interest rates- AP

Factory orders rise 0.9 percent in September- AP


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