FOREX, COMMODITIES, STOCKS OUTLOOK June 8th: News, Analysis Trades 10:30 GMT

8 06 2010

Stocks: Prior day: Asia, Europe, US down. Today: Asia up, Europe down. Stocks plunged again in the US, rallied in Asia, and an attempted follow-through European rally is failing for lack of justification, reinforcing the bearish indicators we pointed out last week in our special report: Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets. Most major indices are forming or have formed bearish ‘death crosses (50 day MA crosses below 200 day MA) signaling a longer term downtrend.

US Bonds: Up falling stocks sent investors fleeing into bonds. Yields on the benchmark 10-year Note fell slightly from 3.20% Friday to 3.1840% at the US close Monday.

Commodities: Up Oil up on bounce off strong support, gold continues to rise on EUR declines

FX: Overall bias TO safety currencies [JPY, USD, CHF in order
of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GB in order of risk
appetite appeal], mostly according to a currency’s place on the risk spectrum, 
but with the CHF strongest as it catches up to other safe-havens now that the SNB has suspended intervention, decoupling the CHF from the falling EUR.

Main events: MON: AUD ANZ Job Advertisements m/m EUR German Factory Orders m/m, CAD BoC Gov Carney Speaks TUES: USD: Fed Chairman Bernanke Speaks CAD Housing Starts WED:AUD Home Loans m/m, NAB Business Confidence, GBP Trade Balance CNY New Loans USD Fed Chairman Bernanke Testifies, Crude Oil inv., Beige Book, NZD Cash Rate/Press Confr/Rate St. THUR: AUD Employment Change/Rate, RGBA Gov Stevens Speaks, CNY Trade Balance EUR French Ind. Prod., Minimum Bid Rate, Trade Balance, ECB Press Confr. GBP Asset Purchase Facility, MPC Rate St. Official Bank Rate USD Unemployment Claims FRI: CNY CPI y/y, Fixed Asset Inv., Ind. Prod y/y PPI y/y, GBP PPI Input m/m USD Core & Retail Sales, Prelim UoM Consumer Confidence

Big Theme: Risk Appetite Gone Again? Friday’s panic selloff in risk assets on news about Hungary and poor US jobs reports continues thus far into the week, as a mild rally attempt in Asia this morning reverses in Europe, further entrenching the downtrends in virtually all risk assets over the past months. For details see out weekly outlook reports: The Week Ahead: Stocks, Commodities, Forex – 3 Key Market Drivers June 7th – 11th (and abridged version for those pressed for time), June 7th – 11th Quick Review/Preview: Stocks, Commodities, Forex, See also our latest special report: Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets in which we discuss how key risk asset charts show 3 major signs of a more prolonged bear market ahead.

STOCKS:

US: Down – With all major indices in sharp selloff mode since Friday and no compelling news, stocks drifted without direction but in the end downward momentum carried stocks lower, with US stocks down again over 1%, the Nasdaq down over 2%.

The broad-based slide that saw the S&P 500 settle at session lows around the 1050 level, a key level because this was the low for the last pullback in February.

Losses were sharp, especially among industrials plays, which fell 2.6% as all 57 names in the sector settled in the red.

Utilities were the only major sector to finish with a gain. They advanced 0.5% Other defensive-oriented stocks also attracted support; health care finished with a fractional loss and telecom closed with a tepid 0.1% loss.

Tech stocks plunged for a 1.9% loss. Their weakness weighed heavily on the Nasdaq and caused it to underperform the other headline indices for the entire session.

Gold and silver stocks rose with precious metals prices as investors move to hedge the value of currency. Specifically, Newmont Mining (NEM 55.16, +1.44), Yamana Gold (AUY 10.81, +0.31), and Barrick Gold (ABX 43.12, +1.70) were among the best performers as gold gained 2% to close pit trade at $1240.80 per ounce and silver settled 5% higher at $18.16 per ounce.

Bristol-Myers (BMY 23.86, +1.42) and Celgene (CELG 53.82, +2.27) were the best overall performers by percent gained this session. Their advances in the face of broader market weakness were underpinned by positive drug study results.

US economic data was limited to a monthly consumer credit report, which showed that consumer credit increased by $1.0 billion in April. An increase from the downwardly revised $5.4 billion decline in consumer credit for the prior month. However, the report did not influence markets.

US Bonds: Up on Monday- Treasuries were predictably higher as the continued stock market selloff sent investors fleeing into bonds in a flight to safety move. Yields on the benchmark 10-year Note fell slightly from 3.20% Friday to 3.1840% at the US close Monday.

Asia Stock Outlook: Up: Most Asian indices closed higher on Tuesday in choppy trade after a key support levels held, with short-covering and bargain hunting emerging a day after the benchmark Nikkei suffered its biggest one-day fall in 14 months. Given the lack of positive news, we view this as a temporary technical bounce off support.

European Stock Outlook: Down – European shares opened higher following Asia but have reversed into the red in mid-morning European trade. No particular news, just a rally attempt failing for lack of any justification or adequate support.

ASIA Down prior day N225 – 3.84 % HS – 2.31 % SSEC – 1.64 % FTSTI – 1.67 % AORD – 2.72 %
EUROPE Down prior day FTSE – 1.11 % DAX -0.57 % CAC – 1.21 %  
US Down prior day S&P – 1.35 % DJIA – 1.16 % NASDAQ – 2.04 %    
THIS MORNING Up N225 +0.18 % HS +0.58 % SSEC +0.09 % FTSTI +0.46 % AORD +1.16 %
Down FTSE -0.85 % DAX -0.92% CAC -1.44 %  

Commodities Outlook Monday and early Tuesday trade GMT: Up

Crude Oil Daily Outlook: Up- Oil futures bounced off strong support at $70 to rise to $71 Monday, and continue rising to over $72 in early Tuesday trade GMT

In the US it was a quiet session for the energy complex (+0.6%), as July crude oil closed lower by -0.1% to $71.44 per barrel. July natural gas finished higher by 2% to $4.896 MMBtu.

Per Reuters, a Goldman Sachs report expected crude oil prices to move into an $85 to $95 trading range in the second half.

Gold Daily Outlook: Up 2%- At the US close Monday, A jump in precious metals (+3.5%) helped the CRB commodity index finish in positive territory today, despite four other sectors ending the session in the red. July silver closed higher by 5% to $18.162 per ounce, while August gold ended up 2% to $1240.80 per ounce. Despite the Euro’s gains vs. the USD Monday, there was a rally in gold priced in Euros, supported by a flight to safety, helped push precious metals futures higher today. On the contrary, industrial metals, including nickel, aluminum and copper, all finished the session well lower.

With no inflation threat likely until some time in 2011 at earliest, the biggest single factor driving gold is anxiety about the value and viability of the Euro, for that has driven the breakout gold has had since mid-April, coinciding with the rapid deterioration in the EU debt crisis. The latest potential default threat from Hungary, unlikely the last such situation from Eastern Europe, adds to fear about the EZ and thus becomes a new fundamental driver for higher gold prices.

Declines in the EUR have tended to bring rallies in gold, and this negative correlation is getting stronger over time and will likely remain as long as deep anxiety over the EUR remains. The recent €1 bln EU/IMF rescue package has succeeded for now in stopping a major run on the PIIGS bonds, but has failed to restore confidence in the Euro or the longer term viability of the EU. Last week’s Spain bank takeovers and credit rating cut didn’t help.

Given that the EU’s problems are not expected to be solved soon, expect gold to maintain its uptrend or at least stay above support at $1160, pulling back only on oversold bounces in stocks and on central bank intervention likes we saw two weeks ago. When either of these occur, they are a good setup for new long positions. For the coming weeks, we expect gold to bounce within its $1160-1240 range. It could go higher if there is any further significant deterioration in the EUR and / or new sovereign debt deterioration.

FOREX Daily Outlook in Monday and early Tuesday trade GMT: Mild rally in risk currencies early today following the rally in Asia is reversing as stocks fall into negative territory.

While we were aware of potential trouble there and elsewhere in Eastern Europe (see here for more) for some time, the region had been of the radar for the mainstream financial press, and thus the news that sovereign debt was not limited to the PIIGS block (rename ‘em ‘PHIIGS’

US Dollar Daily Outlook: Up vs, JPY, down vs. all others over the past day on mild risk rally over the past day, which is retracing down at the time of this writing.

Euro Daily Outlook: Up vs. the USD, JPY, GBP, NZD, down vs. the AUD, CAD, CHF – mostly behaving per its place in the risk spectrum with exceptions: CHF pent up demand vs. the EUR sending CHF higher as SNB intervention appears over for now. Currently around $1.1907 and down since the start of the day. Yesterday’s news from German paper Der Speigel that the German constitutional court may oppose German payments for EU bailouts again raises concerns for us about Germany’s long term commitment to the bailout package but as yet is not getting much attention in either the mainstream press or markets

Last week we stated: “With no improvement in the EUR’s underlying fundamental weaknesses, we expect the EURUSD to head back down to test recent support around 1.2200 -1.2000 near term. It has already broken 1.2400 support Monday and remains well below it, currently around 1.2261. The Euro has ceded all of its earlier gains Friday (May 28th) once the news broke of the Fitch credit rating downgrade to Spain, after which the euro fell roughly 0.8% to $1.227. “

However, the news that Hungary is a sovereign default threat, raising the suspicion that there are other such cases in Eastern Europe, (there are, also in the Middle East, and South America) sent the EURUSD crashing through what had thus far been solid support at $1.2000, and currently holding around $1.1937, and is generally moving up from Friday’s close thus far today, though it remains down or even vs. all except for the AUD and NZD.

Yen Daily Outlook: Down vs. all except for the NZD on the prevailing mild risk currency rebound over the past 24 hours, which is currently reversing.

British Pound Daily Outlook: Up vs. the JPY, USD, NZD, down vs. all others, the riskier commodity dollars and the CHF, which is making up for lost safe-haven gains when it was tethered to the EUR by the currently suspended SNB intervention

Australian Dollar Daily Outlook: Up vs. all except for the CAD, CHF on mild risk asset bounce, after being down vs. all Friday and early Monday, no related news behind the move.

The AUD may be done for now with rate increases but it still is the ideal buy for carry trade with its highest short term rate, and also posted its 5th straight quarterly year on year GDP increase. However, new risk aversion from Friday’s news on Hungary and the US jobs picture, feed risk aversion, concerns about a slowing China and its effects on the AUD remain in the background but are not forgotten.

New Zealand Dollar Daily Outlook: Down vs. all except for the USD as it remains among the weakest currencies during both the risk aversion of Friday-Monday and the risk bounce Monday-Tuesday.

Canadian Dollar Daily Outlook: Up vs all except for the CHF

Swiss Franc Daily Outlook: Up vs. all others despite mild risk currency rally as the CHF continues to make up for lost ground as the #3 safe haven currency in the broader multi-week risk aversion trend. The CHF missed out on most of this due to market belief that the SNB would continue to intervene to keep it falling along with the collapsing EUR. However, that effort clearly has been suspended as of Friday’s plunge by the EURUSD through strong mult-year support with no relief in sight.

CONCLUSIONS & Big Picture: Friday’s rout of risk assets on news about a possible Hungary default, (also exacerbated by bad US job figures, keeps the multi-week trends firmly down for risk assets, though with such strongly negative sentiment risk assets could always catch a short term bounce higher like we’re seeing today, without even the help of any kind of mildly positive news. Beware, however, as we note in our recent special report: Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets. Stocks are the key barometer for risk assets, with the S&P 500 the most indicative of overall risk asset trends. It is showing 3 major bearish signs of more downside to come for the coming months( long term down trend, death cross, average percent drop below major moving averages still suggests more decline). See the above links to out weekly outlook reports for more on likely market moving forces for the coming week and beyond.

Trade Ideas

EURUSD Short: Currently down from around 1.1950 yesterday to 1.1917 today, the1.2200 major support level COLLAPSED in the wake of Friday’s selloff on news of the possible Hungary default. No real support before 1.1800 – 1.1700 range. Too late to enter now, wait for bounce back to around 1.1950l. Entry point at/near 1.1950, target just above 1.1700, stop loss just above 1.2000, for risk:reward ratio of nearly 3:1

EURUSD WEEKLY CHART COURTESY AVAFX 10june07

CRUDE OIL Short: Currently around $71 at the 50% Fibonacci retracement level. prices collapsed Friday from $74 and strong resistance both from this price level and the 61.8% Fibonacci retracement level from the lows of July 2009, now at $71.25 Death Cross now officially forming as the 50 day – 200 day EMA and now touch, suggesting the trend has legs (short bounces along the way, off course). No significant multi-day resistance until just above the 38.2% Fibonacci resistance at around $68.20.

We exited at out profit target from our last crude trade at just above %71. Next trade:

Entry point: around $71, first profit target exit just above $68.20, stop loss $$71.60, risk:reward better than 3:1.

CRUDE OIL DAILY CHART COURTESY OF AVAFX 11JUNE07

DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.

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