Cliff Wachtel's  Instablog

Stocks: Prior Day: Asia up, Europe up, US Up, this morning Asia, Europe up

- FX: Higher equities Friday, 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: EUR: German ZEW sentiment NZD: RBNZ Financial stability report

- Big Theme: Rising risk appetite –or range trading until next major news? Rising thus far this week-See Conclusions below for trading opportunities. TRADERS SHOULD HAVE TRADING PLANS READY FOR MOVES IN EITHER DIRECTION given the lack of major news and extended rally

STOCKS

US: Market participants responded to a sharp drop by the U.S. dollar with a broad-based buying effort that helped stocks make heady gains and finish at session highs. In fact, the Dow Jones Industrial Average logged its best closing level in 52 weeks.

News that members of the G-20 and Treasury Secretary Geithner maintain the view that economic stimulus should not yet be withdrawn led to heavy selling against the U.S. dollar and drove the Dollar Index back to 2009 lows. It spent the entire session trading with a loss of roughly 1.0%.

Asia: Up Monday, still up Tuesday but paring gains as risk assets pull back on Fitch downgrade of UK

Europe: Up Monday, pulling back Tuesday along with other risk assets, especially hit by Fitch downgrade of UK

GLOBAL   MARKETS Yesterday
ASIA- UP	N225I +0.20%	HS +1.73 %			SSEC +0.36	FTSTI +0.88%		AORD +1.78 %
EUROPE UP	FTSE +2.14%	DAX +2.40%			CAC +2.11%
US- UP/FLAT	S&P +2.22%		DJIA +2.03%		NASDAQ +1.97%
THIS MORNING
ASIA CLOSING UP
N225I +0.63%	HS +0.27 %			SSEC +0.10	FTSTI +0.29%	AORD +1.23 %
EUROPE: OPEN UP
FTSE +0.041%	DAX +0.07%			CAC +0.21%

Oil: Meanwhile, buying in crude futures drove oil prices above $80 per barrel, but some momentum was lost so that contracts closed with oil priced at $79.43 per barrel, up 2.6%.

Gold: Prices hit a new all time high of $1111.70 per ounce before pulling back a bit to settle pit trade with a 0.5% gain at $1101.40 per ounce. Pulling back into Tuesday trade.

CURRENCIES: The U.S. dollar was under renewed selling pressure on Tuesday while the euro and higher-yielding currencies revisited recent highs as investors piled on to leveraged carry trades. Expectations that U.S. interest rates are likely to stay near zero are encouraging investors to use it as funding for carry trades in higher yielding assets. NB: Risk assets pulling back slightly Tuesday morning in general.A Group of 20 statement at the weekend that the extraordinary stimulus would stay in place until a global recovery was well established suggested easy money would continue to chase riskier assets like stocks, commodities and growth-linked currencies like the Australian and New Zealand dollars.USD:The U.S. dollar was under renewed selling pressure on Tuesday while the euro and higher-yielding currencies revisited recent highs as investors piled on to leveraged carry trades

EUR: the euro higher against the USD and lower yielding safe haven JPY, lower against higher yielders

JPY – Losing ground against most other currencies as part of the overall move into riskier, higher yielding assets

GBP – Down hard on news of Fitch downgrade of UK

AUD: Gaining against lower yielding currencies as part of the continuing risk appetite driven move to higher yielding currencies.

NZD: Gaining against lower yielding currencies as part of the continuing risk appetite driven move to higher yielding currencies

CAD: Steadily gaining against the USD following oil, stocks higher, despite oil’s choppy action.

CHF: Losing ground against most other currencies as part of the overall move into riskier, higher yielding.

CONCLUSIONS: Surprisingly resilient optimism despite high valuations and a negative US employment report. For now, risk assets steady or rising. Traders should consider going with the current trend but be ready for pullbacks. See the full Daily analysis for specific opportunities with CRUDE, GOLD, EURUSD, NZDUSD, AUDUSD, GBP/USD[coming in hard Tuesday morning on Fitch downgrade of UK] Trading Opportunities: Near term has favored risk currencies, shorting safe-haven assets. Today’s news is quiet, indeed, the week is fairly quiet, suggesting range trading. Given that markets remain very high despite mixed earnings and negative US jobs reports, still awaiting a pullback. 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 hold near multi-year highs independent of movements in equities, purely on speculation that other central banks and other large buyers may do the same. It is difficult to predict the extent or duration of such a sentiment driven move into new territory. Inflation is not be seen as a threat, but continuing USD declines encourage large USD holders to diversify into gold, especially as long as interest rates remain low and thus reduce the opportunity cost of holding gold. 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. Famed NYU Economics Professor Nuriel Roubini, credited for calling the current crisis years ago, believes the run in gold is an unsustainable bubble, while famed commodity trader Jim Rodgers holds gold is going much higher.

Crude Oil: For over 2 weeks trading in the $82-$76.50 range, dropped on Friday despite steady stocks, rising gold and a falling USD, suggesting that oil may be showing more sensitivity to underlying fundamentals than gold. The historical range of the oil/gold price ratio is between 12:1, which would suggest oil should be at $91, and 15:1, which would imply oil should be at $73. Thus while crude remains range bound, if gold can hold its 1100 level, as many expect it to do, then crude could follow it sharply higher over time, especially if other risk assets can avoid a sharp correction or there is evidence of continued strong demand from China and other developing economies

WTI Crude Oil Daily Chart

01 Nov 09

EURUSD: Continuing higher after it broke decisively above the key $1.4700 support level (50 day MA + 23.6% Fibonacci retracement from its June rally) on 11/4. Approaching the upper end of its range since late September.

EURUSD DAILY CHART

02 Nov 09

NZDUSD:

Breaking sharply higher in early Monday trade above strong resistance (BB + 50 day SMA) on rising dairy price data and weakening USD as the poor US jobs report pushes USD rate increases further into the future. STILL AT THE LOWER END OF ITS TRADING RANGE FROM MID SEPTEMBER

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

04 Nov 09

GBPUSD: One of the strongest currencies last week against the USD and EUR as it gained on less than expected expansion of QE, but nearing the top of its trading range since mid July and at the top of its Bollinger Band Range and recent high of $1.700. Could be a good short trade if markets pull back.

GBP/USD Daily Chart.

05 Nov 09

OTHER HEADLINES

Investors look to consumer for clues to recovery – AP – Sun 4:11 pm ET
Investors will get some guidance about the economy this week from data issued not by the government, but by big retailers in the form of third-quarter earnings reports.

One last hurrah-Reuters

Risky assets such as equities and emerging markets may have scope for another rally before the year is out as policymakers renew pledges to keep economic boosters in place. Full Article

(Seekingalpha.com)

Is the Risk Trade Back On?

The Good, the Bad and the Ugly: Australian, U.S. and U.K. Economies

U.S. Employment Picture Remains Unattractive

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