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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • World Markets Brief 1/05: Best Daily FX, Commodity Trades For "US Jobs Week"  0 comments
    Jan 5, 2010 5:07 AM

    NB: THE FOLLOWING IS AN ABRIDGED VERSION FOR FULL ANALYSIS AND CHART ILLUSTRATIONS OF RECOMMENDED TRADES GO TO http://fxmarketanalysis.wordpress.com/ AND SELECT "DAILY OUTLOOK" FOR TODAY

    Stocks: Prior Day: Asia down, Europe, USA up Today: Asia up, Europe down. Risk appetite fading on UK news

    - 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 jobs news week. Many at Good Entry Pts SEE – SEE RECOMMENDATIONS BELOW FOR THE COMING DAYS

    STOCKS

    US: All three major indices hit new 52-week highs on the back of broad-based buying, for a good start to the New Year. Though trading volume wasn't quite back to average levels, the move was supported by a solid pick up in participation. Equities rose throughout the morning, following through on a similarly upbeat European session.

    "US Jobs Week" Special Report: The ISM Manufacturing PMI Summary, Ramifications: See Daily Outlook

    Asia: Asia stocks update: Rising European and US markets sparked confidence as Asian stocks followed through to a fresh 17-month high in early Tuesday trade as investors continued to be drawn to riskier assets, while the dollar stabilized after a weak start to the year

    Europe: European shares jumped to a 15-month high in a broad rally on Monday, , helped by upbeat economic data and with banks among the major gainers. While many were not surprised by the surge in stocks following a cautious, quiet past two weeks, there is concern that equities could fall once stimulus programs start pulling back.

    The FTSEurofirst 300 .FTEU3 index of top European shares rose 1.4 percent to end at 1,060.73 points, the highest closing level since early October 2008..

    ASIA- DOWNN225I -1.03%HS -0.23%SSEC +0.45%FTSTI -0.12%AORD +0.15 %
    EUROPE UPFTSE +0.28%DAX +1.53%CAC +1.97% 
    US- UPS&P +1.60%DJIA +1.50%NASDAQ +1.73%  
    THIS MORNING UPN225I +0.25%HS +2.09%SSEC +0.45%FTSTI -0.12%AORD +1.02 %
    DOWNFTSE -0.29%DAX -0.19%CAC -0.15% 

    Commodities: , the CRB Commodity Index advanced 2.1%. Meanwhile, precious metals prices, as a group, gained 3.1%.

    Crude Oil Outlook: As of the close Monday, crude oil prices climbed 2.7% to $81.51 per barrel as they broke the $80 per barrel barrier for the first time since November.

    Gold Outlook : Gold finished Monday up 2.05% to $1117. Moving up as the USD drops. See Trade Recommendations below

    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. Today's US pending home sales won't offer any direct clues on the jobs report, but is in itself a key indicator of jobs and spending --SEE WEEKLY OUTLOOK FOR KEY EVENTS AND FORCES TO WATCH FOR CONCERNING ALL MAJOR CURRENCIES

    USD: US Dollar Daily Outlook: Steady in early Tuesday trade after The USD index fell 0.4% yesterday as rising equities boosted demand for higher yield currencies. The dollar was also under pressure from fund managers trying to rebuild their portfolios at the start of the year by buying stocks, commodities and higher-yielding currencies.

    EUR: Euro Daily Outlook: Continuing Monday's rise in early Tuesday trade, supported by both good data Monday and rising risk appetite, as it opens above nearest resistance-turned support level at 1.4412 (see EUR/USD chart and full explanation below in Trade Recommendation.

    JPY: Yen Daily Outlook: Except for the USD gains, the yen lost ground across the board Monday. The dollar slipped 0.3 percent against the yen to 92.26 yen having fallen from a four-month peak of 93.22 yen hit on trading platform EBS on Monday. Traders were eyeing whether the dollar could rise back above 92.80 yen -- right around a 61.8 percent Fibonacci retracement of the dollar's fall from its high in August of 97.79 yen down to a 14-year trough of 84.82 yen hit in November. A rise above 92.80 yen could prompt a rally to 95 yen to the dollar, traders said.

    GBP: British Pound Daily Outlook: Continuing down vs. the USD and EUR since Sunday into early Tuesday trade, despite good domestic and global data from the Euro-zone and US. Tuesday is getting ugly fast for the GBP after a daily telegraph report quotes PIMCO representatives saying they are cutting back UK (and US) bond exposure given the huge amount of debt coming out from these countries this year. The cable was also hurt by another Cadbury rejection of Nestle's acquisition offer, which is bad for merger and acquisition flows

    AUD: Australian Dollar Daily Outlook: The Australian dollar rose as far as $0.9164, its highest since Dec. 15,

    NZD: New Zealand Dollar Daily Outlook: Gaining on the USD along with the rest of the market Monday, steady in early Tuesday trade.

    CAD: Canadian Dollar Outlook: Gaining on the USD along with the rest of the market Monday, steady in early Tuesday trade.

    .

    CHF: Swiss Franc Daily Outlook: Gaining on the USD along with the rest of the market Monday, steady in early Tuesday trade.

    CONCLUSIONS: S&P 500 up on good US, global manufacturing data Monday, retaking lost ground to new highs, along with other major indexes. 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, and GBPUSD

    SEE BELOW FOR BIG PICTURE, TRADE RECOMMENDATIONS.

    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, though as stimulus programs end in mid 2010 and mortgages reset higher we are skeptical about the rally's long term health. Meanwhile, play the uptrend. 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. This theory will be proven right or wrong as of the end of this coming Friday, at least for the near term. While traders should play the current anti-USD trends in the short term, we view the current USD reversal as a reaction bounce and opportunity for traders to get ready to re-enter USD long positions or short position on crude oil, gold, the euro, Australian dollar, New Zealand dollar, Canadian dollar, and, Swiss Franc. 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 http://fxmarketanalysis.wordpress.com/ 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. Keep alert for other special reports on the latest data that sheds light on Friday's likely outcome, like today's: ISM’s PMI Manufacturing Report: Prelude to Friday’s Climactic Jobs Reports-Summary, Ramifications.

    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. Monday's retaking of its upper trend line means we're getting close to taking new long positions for the short term.

    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 (02 Jan 05 )

    ** 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 $1125, right at support/resistance, thus a good entry point for a move in either direction to the next Fibonacci level for better than 2:1 risk reward. See the below chart

    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 05)

    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 $82, 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 (04 Jan 05)

    EURUSD: Like gold and many of the anti-USD plays, sitting right around major support/resistance, thus entry at this point for either long or short play presents better than a 2:1 reward/risk ratio. If related US data regarding jobs continues positive it could well cause the current anti USD trend to reverse. But meanwhile, our bias is to the current anti-USD trend.

    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.

    EURUSD DAILY CHART (05 Jan 05) AVAFX CHART

    NZDUSD: Gained big on Monday, currently around 0.7348. Still has plenty of room to run higher, but only if keep a stop no lower than 0.7300, where there is some price support and is close enough to allow a better than 2:1 reward/risk level

    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 (06 Jan 05) AVAFX CHART

    USDCAD: A clear shorting opportunity IF it can decisively break below 1.0352, 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 resumes.

    USDCAD DAILY AVA FX CHART (image: 07 Jan 05)

    USD/CHF: Like the other anti-USD trend plays now, near significant support/resistance 1.0295. A legit short if it breaks below the 38.2% Fib level, for a roughly 2/1 reward risk ratio. A worthy long play if the USD starts to reverse, with stop loss at the aforementioned level and target at the 23.6% Fibonacci level around 1.0356.

    USD/CHF DAILY AVA FX CHART ( 08 Jan 05)

    GBP/USD: Best long USD play?

    Short: Don't short until it retests 61.8% Fib level of 1.6129, and then reverses back down OR on a break below the 76.4 Fib level around 1.5968, after which there is a long way to fall with no real resistance.

    GBP/USD Daily AVAFX CHART (09 Jan 05)

    OTHER HEADLINES

    .

    Bloomberg.com

    eaking News

    Breaking News

    (Seekingalpha.com)

    ISM's PMI Manufacturing Report: Prelude to Friday's Climactic Jobs Reports-Summary, Ramifications

    GREAT EXPECTATIONS

    Currency Pair Overview: Dollar Turns Red On Positive Data

    Global Market Wrap: Stocks Rise As Manufacturing Advances

    Chart of the Day: Watch Oil, Trade USD

    Market Outlook for 2010: These 3 Economic Forces Will Determine Market Direction

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

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