Overview: Stocks and other risk assets continue to fall, continuing last week’s big theme – indications of slowdown in the second half of 2010, as US jobs manufacturing, and ECRI weekly leading indicator data worsened, Bundesbank Head Weber offered a pessimistic view of the coming year for the EU, and contracting GDP threatened Greece’s recovery. This week’s major events will offer further clarification, including revised GDP reports from the US, Germany,(these 2 could be the biggest events of the week) and the UK, various EU Flash PMIs, and US home sale and durable goods order. For full details on the week ahead see: The Week Ahead: Stocks, Commodities, Forex Key 5 Market Drivers August 23rd – 27th and August 23rd – 27th Quick Review/Preview: Stocks, Commodities, Forex
STOCKS: US: Down – Continuing down, making lower highs and lower lows on lack of any justification for moving higher, despite more merger activity. After falling below its 50 day SMA last Thursday, the S&P 500 tried but failed to breach it. Futures continuing down in midday GMT trade Tuesday.
Near term resistance for the S&P 500 is its 50 day SMA at 1079. Traders could consider going long once this level is breached. Near term support levels: 1060, then 1040 (includes 50% Fib retracement from July 2009) then 1010. Traders looking to go short should look to enter on breaches of these levels, with exit targets just before the next support level. Remember your risk management-stop loss levels should be close enough to the entry point so that the distance from entry point to stop loss should be 1/3rd or or less the distance from entry point to profit target, to allow for a 3:1 reward: risk ratio.
Bellwether S&P 500 in serious technical breakdown, suggesting more downside ahead. See the stocks section of August 23rd – 27th Quick Review/Preview: Stocks, Commodities, Forex for details
US Bonds: Up- Benchmark 10 Year Note up with falling stocks, with yield down slightly from 2.6120% to 2.6070%, still near a 15 month low.
Asia Stock Outlook: Mixed/Down- Most major Asian markets down on low volume as markets continue to price in last week’s downgraded view of global growth and major players take profits. The Nikkei closed at a 15 month low, below 9000, on concerns that a continued strong Yen will hurt Japan’s weak recovery and inaction by Japan to weaken the Yen. Shanghai still has modest gain. Nikkei now down 21% since April,
European Stock Outlook: Down – All major European bourses tracking US lower on building evidence of economic slowdown, despite rising M&A activity. Low interest rates, inflation, cost cutting, stagnant wages and emerging market growth have allowed corporate earnings to progress despite the economic deterioration in most of the developed world. Solid German data and EZ industrial orders overridden by risk aversion.
Commodities Outlook Monday-Early Tuesday: Futures mixed. Energy weak, wheat, soy stable, sugar, coffee, rising, corn falling. Note that most soft commodities have been in major up-trends since July and these remain intact, though many are flattening out
Crude Oil Daily Outlook: Down- Following stocks, continuing its Thursday breakdown after bad US jobs and manufacturing data sent it below strong 4 month support of $75. Futures currently around $72.28, down from $73.70 24 hours ago, next near term support on daily charts is at its 61.8% Fibonacci retracement from its May 2009 low, just above $71. Bloated US refined products inventories add further downside pressure, as does Sudan’s announcement that it will expand production by about a third in the coming 2 years.
Gold Daily Outlook: Down fractionally: Futures continuing to trade in tight range, currently around $1221 down from $1230 in the past 24 hours, pressured by a rising USD. Still within about 3% of its all time high, strong uptrend intact, suggesting a coming test of the $1260 area. Any spiking of PIIGS bond or CDS rates or other EU debt/banking crisis deterioration could well push it to new highs as concern for the EUR’s stability has been the driver of gold’s rally this year. Rising demand anticipated from the coming India holiday season.
FOREX Daily Outlook Friday-Early Monday trade GMT: Bias to safety currencies but many exceptions, quiet trade thus far. JPY, USD strongest, CAD, GBP, CHF weakest. JPY benefits from risk aversion and BoJ comments that suggest no intervention, GBP suffers on BoE comments that UK may tip back into recession.
US Dollar Daily Outlook: Up vs. the EUR, CAD, AUD, NZD, GBP down vs. the JPY, CHF. Per latest COT report, large speculators are long 3.8 to 1 short. Benefitting from risk aversion, lower stocks, but still the #3 safe haven choice behind the JPY and CHF.
Euro Daily Outlook: Down vs. the USD, JPY, AUD, NZD up vs. the CHF, GBP CAD . Pressured by Bundesbank President Weber’s downbeat outlook for the EZ and continued concerns about Greece and rising bond and CDS rates for some of the weaker PIIGS nations like Greece, Portugal. Strong German import, export growth may help but overall risk aversion is likely to override this data and keep the EUR under pressure.
Yen Daily Outlook: Up vs. all thus far today, moving strongly against the CAD, GBP, EUR, CHF on risk aversion flows and no sign of intervention from Japan. Per latest COT report, large speculators remain 5:1 long, small speculators slightly net short, bullish for the JPY. However while a currency can remain oversold for a long time it becomes increasingly vulnerable to any negative developments or risk appetite.
Flash Alert: USDJPY approaches 1995 low of 84.45 as MoF talks down BoJ intervention threat in currency markets.
British Pound Daily Outlook: Down vs. all except up vs. the EUR, on BoE official comments that the UK economy risks slipping into double-dip recession
Australian Dollar Daily Outlook: Up vs. the CHF, EUR (but losing ground to both thus far Tuesday), GBP, down vs. the JPY, USD NZD, CAD. Giving back yesterday’s gains vs. most fx thus far Tuesday
The AUD rose vs. most fx Monday on the realization that whatever coalition comes about will most likely further weaken or eliminate the proposed large tax increase on mining companies, which is good for the AUD. Giving back those gains thus far Tuesday
New Zealand Dollar Daily Outlook: Down vs. the USD, JPY, up vs. GBP, EUR (but falling vs. the EUR today), CHF, CAD, but reversing lower thus far Tuesday vs. the AUD and CHF.
Canadian Dollar Daily Outlook: Down vs. all for the second day straight, pressured by falling stocks, oil, risk appetite, and falling rate increase expectations, after a long rally made the Loonie ripe for a correction.
Swiss Franc Daily Outlook: Since Friday down vs. the GBP, JPY, USD, EUR, AUD, NZD up vs. the CAD, as of midday Monday GMT dropping vs. the USD and JPY, gaining vs. the commodity dollars. Generally continuing to drop thus far today.
DISCLOSURE: NO POSITIONS
[...] Overview: Stocks and other risk assets continue to fall, continuing last week’s big theme – indications of slowdown in the second half of 2010, as US jobs manufacturing, and ECRI weekly leading indicator data worsened, Bundesbank Head Weber offered a pessimistic view of the coming year for the EU, and contracting GDP threatened Greece’s recovery. [...] Ava FX Market Analysis [...]
[...] Overview: Stocks and other risk assets continue to fall, continuing last week’s big theme – indications of slowdown in the second half of 2010, as US jobs manufacturing, and ECRI weekly leading indicator data worsened, Bundesbank Head Weber offered a pessimistic view of the coming year for the EU, and contracting GDP threatened Greece’s recovery. [...] Ava FX Market Analysis [...]