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World Markets Brief 1/04: Best Daily FX, Commodity Trades for "US Jobs Data Week"


Stocks: Prior Day: Asia up, Europe, mixed, USA down Today: Asia down, Europe up. Pre-Holiday thin liquidity is dangerous –enter only at strong support/resistance with nearby stop losses for small losses – bias to profit taking
-           FX: no clear bias to safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GBP in order of risk appetite appeal], USD starting to lose ground vs. most majors in early European trading.
-           Main events Mon.-GBP: Mfg. PMI, USD: ISM Mfg PMI, Tues.- GBP: Halifax HPI m/m,  Construction PMI, USD: Pending Home Sales
-     Big Theme: Caution ahead of US Mfg. PMI and big US jobs news week.  Many at Good Entry Pts SEE  – SEE RECOMMENDATIONS BELOW FOR THE COMING DAYS
US: Light news and volume caused stocks to drift for most of the session, but some late pressure caused stocks to close at session lows with losses around 1%. Still, stocks settled only slightly below their 52-week highs with strong gains for the year.
Asia: Asia: TOKYO, Jan 4 (Reuters) - Japan's Nikkei stock average climbed 1.2 percent on Monday, bolstered by exporters such as Honda Motor Co (7267.T) on a weaker yen after U.S. jobless claims data strengthened hopes for a steady economic recovery
Europe:  Up in early trade Monday. European shares rose on the first trading session of the year on Monday, extending last year's strong run, with banks, oil producers and drugmakers leading the gainers.
N225I -0.86%
HS +1.75%
SSEC +0.45%
FTSTI +0.62%
AORD +0.74 %
FTSE +0.28%
DAX -0.90%
CAC +0.02%
S&P -1.00%
DJIA -1.14%
NASDAQ -0.97%
N225I -1.03%
HS -0.23%
SSEC +0.45%
FTSTI -0.12%
AORD +0.15 %
FTSE +0.55%
DAX +0.83%
CAC +0.90%
Oil:  Despite sideways movement, crude oil trades with upward bias in Asian morning. The February contract touched 80 and attempted to break above it. Strong China PMI data fueled optimism that demand for energies will improve in 2010
Gold:    Gold prices traded narrowly around $1,095 an ounce on Monday, in cautious trade ahead of U.S. December jobs data due later this week that could add to optimism, about the economy. A strong reading would likely strengthen the dollar but pressure gold. The precious metal is often bought as an alternative to the dollar.
CURRENCIES: The coming week dominated by US jobs data, also significant EUR GBP, AUD, and CAD news. For the coming week, traders will be looking for clues to the contents of Friday's important U.S. December jobs reports,  starting Monday with figures on manufacturing for December, which include an employment component--SEE WEEKLY OUTLOOK FOR KEY EVENTS AND FORCES TO WATCH FOR CONCERNING ALL MAJOR CURRENCIES
USD: US Dollar Daily Outlook: The dollar edged down from a four-month high against the yen but held firm against other majors on Monday, the first trading day of 2010, as investors focused on U.S. data this week.   The dollar index, a gauge of the greenback's performance against six other major currencies, inched up 0.3 percent to 78.060. SEE WEEKLY OUTLOOK FOR MORE
EUR: Euro Daily Outlook: Steady vs. the USD in early Monday trade. Also a busy week for the Euro zone, manufacturing PMIs are due today from both Germany and the Euro zone. The German reading is expected to be confirmed at 53.1, but the consensus expects the Euro zone reading to be revised up to 51.6 from the flash estimate of 51.2. On Tuesday, we expect the December Euro zone CPI estimate to tick higher to 0.7% y/y from 0.6% y/y, while the consensus is looking for an even firmer 0.9% y/y print. Even if the latter rate of increase in realized, CPI would remain at levels that are uncomfortably low for the ECB, although deflation is now a distant prospect.
JPY: Yen Daily Outlook: Up vs. the USD, down vs. the EUR in early Monday trade.  Investors are set to take cues from the U.S. December  employment report on Friday as well as figures from the manufacturing and service sectors.   
GBP: British Pound Daily Outlook: Down vs. the USD and EUR in Sunday and early Monday trade.
AUD: Australian Dollar Daily Outlook: The Australian dollar edged lower on Monday, weighed down by a bounce in the U.S. dollar that was helped by hopes of a recovery in the U.S. economy. Aussie at $0.8942 from $0.8980 seen here late Thursday, the last day it traded. It is likely to face resistance between $0.9005-$0.9010 in the near term.  It was steady on the yen at 83.21 compared to Thursday's 83.02.
NZD: New Zealand Dollar Daily Outlook:  Unchanged from Sunday after 2 days of pullback at key resistance, see trade recommendations for more.
CAD: Canadian Dollar Outlook: Unlike the other commodity dollars, fell vs. the USD Tuesday along with most of the FX market, trying to recover a bit in early Wed. trading on no significant news, apparent profit taking on the anti-USD rally this week.
CHF: Swiss Franc Daily Outlook: Steady vs. the US dollar in early Monday trade.
CONCLUSIONS: S&P 500 pulls back slightly on no real news, yearend profit taking, continuing its slow low volume drift near highs. Near term direction likely to be driven this week by news that influences expectations for Friday's climactic Non-Farms Payrolls and Unemployment reports See below for specifics on the S&P 500, CRUDE, GOLD, EURUSD, NZDUSD, USDCAD, USDCHF,  GBPUSD
BIG PICTURE TRADE STRATEGY:The S&P 500 and other major stock indexes remain in up trends, thus our longer term ambivalent bias is long on risk assets like stock indexes, commodities, and higher yielding currencies.  Because we suspect that the Euro-zone's debt travails are far from over, and that some key commodities are still overpriced, our longer term bias is to believe the USD trend up still has room to run, but. timing when the current reversal will end is tricky, so new positions should not be attempted until the trend at least begins to resume. Expectations are high for Friday's US jobs data. If met or beaten, the USD could well get the next leg of its rally, to the detriment of its popular counterparts, especially the EUR, GBP, and JPY. The central banks of all of these have been moving in more dovish directions relative to the Fed. NB: Non-Farms Payrolls Change week tends to be volatile, so we try to select only those trades with resistance/ profit targets that  are 2-3 times farther from the entry point than the stop loss, for a 2:1 or 3:1 reward/risk ratio.
SPECIFIC TRADE RECOMMENDATIONS: Big Theme: US jobs data coming out all week long, and anything that provides a hint about the results of the climactic Friday NFP and Unemployment reports may move markets in the short term. SEE THE FULL WEEKLY OUTLOOK at for the events to watch for each day this week, as well as the post: US Dollar 1/3 Weekly Outlook: Beware 11 Events to Move the USD – And Global Markets
S&P 500, Other Major Global Stock Indexes:
Advice: Avoid long plays until hits stronger support or breaks decisively above 1120. At that point we'll examine it to see if the reward/risk ratio is worthwhile. The fact that it's struggling to hold its uptrend line from August is another indication of the trend's weakening, though still bullish picture.
Commentary: Still in Long Term Uptrend, but in a flat trading range since mid November. Despite struggles and concerns ahead, uptrend line clearly intact, suggesting we retain our ambivalent long bias until the trend tells us otherwise, though the trend is still flattening out despite recent small moves higher, the lack of liquidity has made it hard to take these moves seriously. Liquidity will return this week in force. Note that the prior pullback has been regained, suggesting more upside ahead.
Because the S&P 500 is so representative of overall risk sentiment, and thus the "One Chart to Rule Them All", always take a look at the daily chart (or other relevant timeframe to the style you trade) for a picture of overall risk appetite or aversion. The current picture is bullish/long but the move may be losing momentum and flattening out. This week's US jobs data is likely to set the near term direction.
S&P 500 Daily AVA FX Chart    (01 Jan 04 )
** GOLD:Commentary: Still in tight range around 1100, likely to move opposite the volatile USD this week as traders position for US employment data. Good news will likely pressure gold and send the USD higher, vice versa if the opposite. Great short play for those believing that the US jobs data will support current or more hawkish expectations about Fed policy.
Trade Suggestion: Currently around $1106, still in tight range
Going Long Gold: with a break above the $1100 and 61.8% Fib retracement level, traders can consider long gold entries at this level, with no major resistance until about $1126, where there is resistance from the price level itself, the rising trend line, and the 50% Fib level. Thus: Target: $1126, Stop Loss: $ around $1093, for gain of 20 vs. loss of 13. Not a great risk reward ratio, but if you must trade, go with the current trend up. We prefer to wait for the USD to reassert itself next week if there is pro USD news and re-enter the down trend for safer profits.
**Going Short Gold: As noted recently, any decisive break below around 1100 suggests a good short entry – exit at support at 1071 for a gain of 29, stop loss at 1106 for loss of about $6, about a 5:1 reward/risk ratio. Moreover, support at 1071  is weak, which is also where we get the 76.4% Fib retracement level, no price support their, and the declining trend line, the next level, isn't until 1039
Gold is moving opposite the dollar, so watch the EURUSD and S&P 500 for indications of gold's near term moves. Also watch the S&P 500 and other major stock indexes and news to see if risk appetite gets a lift from improving spending, jobs, or other data that ALSO boosts USD stimulus exit and interest rate expectations, thus supporting the dollar and driving down gold.
Gold Daily AVA FX Chart (03 Jan 04)
Updated Gold Forecast-
The key factors behind gold's recent rise were:
·         Expected big purchases by central banks
·         Declining USD
However, the last big central bank move concerning gold was from Russia,  an announced SALE of about $1 bln to finance debt, so that picture is not as clear, especially if the dollar resumes its rise and causes gold to falter. That in turn will depend on whether we see further news concerning one or more of the 3 dollar drivers: a panic event, improvements in US jobs and spending, or news that undermines the EUR. Sovereign debt troubles in the Euro-zone combine two of the three.
The Long Term Bullish Gold Argument: Makes sense as long as the USD Doesn't Make a Sustained Move Higher. Depends how much new data comes in supporting US jobs, spending, and inflation growth. May well test further support, but as long as markets believe that big central banks and funds are buyers, gold will find support, many believe around $1000. Given the doubts most have about central banks’ abilities to reign in money supply as the recovery develops, many believe gold still has plenty of room to run higher over the coming years, despite its already multi-year rally. The debate remains heated, though most still seem to like it over the long term given the huge expansion of money supply and widespread belief in coming inflation.
Crude Oil:  Avoid for now. Currently near $80, too close to its recent high to attempt going long unless we get a decisive break above $82. Solid resistance at $76 makes for poor risk/reward on a short trade. Given the ease with which oil price can and are manipulated, we don't recommend crude trades unless they show us very compelling reasons. None at this time, because it's too late to go long, and too early to go short – we wait for signs of reversal before entering. However if the current USD uptrend reasserts and oil stalls, consider shorting oil as close to one of the Fib or price levels as possible.
Watch the EUR/USD chart for USD movements, and the S&P 500 chart for overall risk sentiment.
WTI Crude Oil Daily AVA FX Chart (04Jan 04)
EURUSD: Essentially unchanged as of early Monday GMT at 1.4307. Avoid for now because it's midway between support and resistance. Consider long plays on breaks above the 50% retracement at 1.4425, short plays on breaks below the next Fibonacci support around 1.4262.
Watch the S&P for overall risk appetite, and the EURUSD for a quick gauge of the USD to judge if oil is ready to stabilize.
NZDUSD:  Trade Suggestion: Can go long or short on a break above or below the current resistance/support of the 23.6% Fibonacci retracement at 0.7245, for with no real resistance or support until the next Fibonacci levels. With stop losses about 30 pips away, excellent reward risk ratios in excess of 5:1.
Made a big move up Tuesday from just below 0.7100, currently around 0.7247 suggesting a developing long entry.. Don't try to go long until that level is breached decisively around 0.7275. A worthy short attempt if it reverses around that level with a stop loss just above the aforementioned resistance level for a good reward/risk ratio.
Watch the S&P 500 and EURUSD to gauge risk appetite and USD strength. Much will depend on further news on US economic fundamentals and Euro zone sovereign debt issues.
NZDUSD Daily Chart (05 Jan 04) AVAFX CHART
USDCAD: A clear shorting opportunity IF it can decisively break below 1.0445, as it's attempting to do on the chart below at the time of this writing. A good long if that level holds and the USD rally continues. With approx. 30 pip stop loss and target at the weak 73.4% Fib level for a better than 3:1 reward/risk ratio. Nearly as good a ratio playing the long bounce to the next Fib level.
USD/CHF: Currently right at support resistance. Not enough room for a short play, but definitely enough room to enter near the level shown below around 1.0380 with a target of 1.0500 and stop loss around1.0350 for a roughly 4:1 reward/risk ratio
GBP/USD: Best long USD play? Essentially unchanged from below, currently around 1.6146, still around the 76.4% Fibonacci level.
Short: The 76.4% Fib level at 1.5974, held, the pair fell hard on renewed USD strength on profit taking on the anti-USD rally. Even with the volatility, given the relatively better fundamentals of the USD vs. the GBP, traders could enter shorts at current level with about 2:1 reward/risk ratio until the next support at 1.5700, after which there is no support for a LONG time.
GBP/USD Daily AVAFX CHART (09 dec 30)
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