Forexwatchman
Sergeant
- Messages
- 198
Standing at the crossroads
First let me give a quick recap to yesterday’s market action and then I will get into my analysis for the upcoming week. Some highlights from yesterday’s news:
· Bloomberg reports Germany may use KfW bank to buy Greek debt
· EU says Greece needs another EUR 4 bln in budget cuts
· Chicago PMI rises to 62.6 from 61.5; stronger than expected
· Reuters: Long dollar position on IMM* largest since Lehman collapse
· S&P 500 rises 0.1%
· Oil up 1.51 to $79.68; gold little changed at $1116
· AIG reports large loss, says may need more government aid
· US Q4 GDP revised to +5.9% from 5.7%, consumer spending weak
· University of Michigan consumer sentiment index falls to 73.6 from 74.4
· US existing home sales fall 7.2% in January
· S&P says US’s AAA rating “hanging in there”
EUR/USD traded with a cautious tone in early US trade, based mostly on continued EU pressuring on Greece for deeper deficit cuts and on risk aversion after AIG said it may need more US funds. Once US economic data was out of the way prices began to recover somewhat, with the market also reacting a Bloomberg story which outlines a potential German plan to buy Greek debt. That, combined with month-end euro demand and short-covering sent EUR/USD up from the 1.3560 area to a high of 1.3683 shortly before the European close. Central banks were sellers into strength today once again, just as they were buyers of weakness early in the session. Rumor has it that stops continue to build in the 1.3700 area.
EUR/USD has had a real hard time closing above our major trendline, doing it just one time on Feb 16, making yesterday’s break an important development. We closed above the line on February 16 at the 1.3780/90’s level before plunging to close the next day at 1.3600. this is a trade setup that I went over in my posts for that same week back when I was still very sure of my dovish stance on the pair. Although that wasn’t much of a signal then, this more recent one truly is a warning sign for the bears, as is the fact that EUR/USD penetrated the 61.8% retracement of the 1.2448/1.5146 rally, that I also went over in earlier posts, twice in the last six sessions but has yet to close below it. As it stands now I am slightly bullish, but it doesn’t take much to turn that around, and this week will certainly be the most crucial week of trading in three weeks.
So here’s where I stand as a trader going forward. Since January I have argued that the US Dollar was likely to recover against the Euro and other key counterparts on extremely one-sided bearish positioning and sentiment. Looking back I wish conditions were still so easy to read now as they were then, yet the tables are still clearly turned in the Dollar’s favor with the CFTC Commitment of Traders data showing Non-Commercials at a record net-long the US currency against the Euro. This week’s fundamentals will be the deciding factor on which way this currency pair decides to go, and I doubt the ranges we’ve been seeing will continue after this coming week.
On Monday US Personal Income and Spending data comes out at 8:300 as well as the later-morning ISM Manufacturing survey at 10:00 am. If we see large disappointments in either one of those numbers it could potentially set the tone for the rest of the week’s trade. Recently we’ve had poor Consumer Confidence numbers painting a dreary picture for the future of domestic consumption, but spending and income numbers are forecast to show reasonable gains through the first month of 2010. Consensus expectations likewise point to reasonable strength in ISM Manufacturing data. Bear in mind though that lofty expectations beget disappointments and we could see considerable volatility surrounding said event risk.
After that we look for Wednesday’s key ADP Employment Change survey data (8:15 am) as well as the ISM Services report (9:15 am). The former is expected to show that private companies shed 10,000 jobs from Payrolls through the month of February—the best such result since January of 2008. As we continue to see smaller job loss numbers in the ADP report and official Nonfarm Payrolls data, it leaves hope that we may continue to see improvements, but any sizeable declines could easily derail expectations for future recovery. The ISM Services Employment Index will certainly be looked upon to shed some light on the state of the jobs market and help foreshadow what we may expect for Friday’s NFP numbers. Said index remains below the expansion/contraction 50.0 mark at 44.0, and it will be critical to see whether conditions improved for the all-important US Services sector.
Finally, as most everyone is aware, the US Nonfarm Payrolls report promises a great deal of volatility not only in the US Dollar, but major financial markets are likely to see sharp price moves on any especially surprising results.
It seems that financial markets are at somewhat of a crossroads. One could certainly make the case that steady improvements in economic data suggest that the worst is now past. On the other, heady gains in the S&P 500 and other key financial market risk barometers leave the door wide open for pullbacks. The week ahead should provide ample clarification on several key themes for the S&P 500, which is very highly-correlated with the US Dollar. Good luck to you!!!
First let me give a quick recap to yesterday’s market action and then I will get into my analysis for the upcoming week. Some highlights from yesterday’s news:
· Bloomberg reports Germany may use KfW bank to buy Greek debt
· EU says Greece needs another EUR 4 bln in budget cuts
· Chicago PMI rises to 62.6 from 61.5; stronger than expected
· Reuters: Long dollar position on IMM* largest since Lehman collapse
· S&P 500 rises 0.1%
· Oil up 1.51 to $79.68; gold little changed at $1116
· AIG reports large loss, says may need more government aid
· US Q4 GDP revised to +5.9% from 5.7%, consumer spending weak
· University of Michigan consumer sentiment index falls to 73.6 from 74.4
· US existing home sales fall 7.2% in January
· S&P says US’s AAA rating “hanging in there”
EUR/USD traded with a cautious tone in early US trade, based mostly on continued EU pressuring on Greece for deeper deficit cuts and on risk aversion after AIG said it may need more US funds. Once US economic data was out of the way prices began to recover somewhat, with the market also reacting a Bloomberg story which outlines a potential German plan to buy Greek debt. That, combined with month-end euro demand and short-covering sent EUR/USD up from the 1.3560 area to a high of 1.3683 shortly before the European close. Central banks were sellers into strength today once again, just as they were buyers of weakness early in the session. Rumor has it that stops continue to build in the 1.3700 area.
EUR/USD has had a real hard time closing above our major trendline, doing it just one time on Feb 16, making yesterday’s break an important development. We closed above the line on February 16 at the 1.3780/90’s level before plunging to close the next day at 1.3600. this is a trade setup that I went over in my posts for that same week back when I was still very sure of my dovish stance on the pair. Although that wasn’t much of a signal then, this more recent one truly is a warning sign for the bears, as is the fact that EUR/USD penetrated the 61.8% retracement of the 1.2448/1.5146 rally, that I also went over in earlier posts, twice in the last six sessions but has yet to close below it. As it stands now I am slightly bullish, but it doesn’t take much to turn that around, and this week will certainly be the most crucial week of trading in three weeks.
So here’s where I stand as a trader going forward. Since January I have argued that the US Dollar was likely to recover against the Euro and other key counterparts on extremely one-sided bearish positioning and sentiment. Looking back I wish conditions were still so easy to read now as they were then, yet the tables are still clearly turned in the Dollar’s favor with the CFTC Commitment of Traders data showing Non-Commercials at a record net-long the US currency against the Euro. This week’s fundamentals will be the deciding factor on which way this currency pair decides to go, and I doubt the ranges we’ve been seeing will continue after this coming week.
On Monday US Personal Income and Spending data comes out at 8:300 as well as the later-morning ISM Manufacturing survey at 10:00 am. If we see large disappointments in either one of those numbers it could potentially set the tone for the rest of the week’s trade. Recently we’ve had poor Consumer Confidence numbers painting a dreary picture for the future of domestic consumption, but spending and income numbers are forecast to show reasonable gains through the first month of 2010. Consensus expectations likewise point to reasonable strength in ISM Manufacturing data. Bear in mind though that lofty expectations beget disappointments and we could see considerable volatility surrounding said event risk.
After that we look for Wednesday’s key ADP Employment Change survey data (8:15 am) as well as the ISM Services report (9:15 am). The former is expected to show that private companies shed 10,000 jobs from Payrolls through the month of February—the best such result since January of 2008. As we continue to see smaller job loss numbers in the ADP report and official Nonfarm Payrolls data, it leaves hope that we may continue to see improvements, but any sizeable declines could easily derail expectations for future recovery. The ISM Services Employment Index will certainly be looked upon to shed some light on the state of the jobs market and help foreshadow what we may expect for Friday’s NFP numbers. Said index remains below the expansion/contraction 50.0 mark at 44.0, and it will be critical to see whether conditions improved for the all-important US Services sector.
Finally, as most everyone is aware, the US Nonfarm Payrolls report promises a great deal of volatility not only in the US Dollar, but major financial markets are likely to see sharp price moves on any especially surprising results.
It seems that financial markets are at somewhat of a crossroads. One could certainly make the case that steady improvements in economic data suggest that the worst is now past. On the other, heady gains in the S&P 500 and other key financial market risk barometers leave the door wide open for pullbacks. The week ahead should provide ample clarification on several key themes for the S&P 500, which is very highly-correlated with the US Dollar. Good luck to you!!!