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World Markets Brief 1/06: Key Events, Best Daily FX, Commodity Trades For "US Jobs Week"

 


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

World Markets Brief 1/06: Key Events, Best Daily FX, Commodity Trades For "US Jobs Week"

- Stocks: Prior Day: Asia down, Europe, USA up Today: Asia up, Europe down. Risk appetite stalled on UK, Greece News

- FX: bias against safety currencies [JPY, USD, CHF in order of safety appeal] vs. risk currencies [AUD,
NZD, CAD, EUR, GBP in order of risk appetite appeal],

- Main events Tues.- GBP: Halifax HPI m/m+, Mfg PMI-, USD: Pending Home Sales- WED: USD: ADP NFP, Challenger Firings, ISM Services PMI, FOMC Bd. Member Lacker Speaks, THURS:AUD Retail Sales, GVP Services PMI, EUR Retail Sales, ECB Press Conference, USD Unemployment 1st Time Claims, Monster.com Online Ads index

- Big Theme: Caution ahead of US jobs news week. More Greek Tragedy Trades: Many at Good Entry Pts SEE – SEE RECOMMENDATIONS BELOW FOR THE COMING DAYS

STOCKS

US: Stocks settle near their session highs to close with modest gains near fresh 52-week highs, after dropping earlier on the worst existing home sales drop in the 16 years that records have been kept. This outweighed upbeat manufacturing reports from the US and China. Wednesday's calendar is packed with most of the last key predictors of Friday's jobs data, so investors were cautious Tuesday.

"US Jobs Week" Wednesday Alert: Four Key Releases And A Funeral SEE DAILY OUTLOOK

Asia: Asia stocks update: Japan's Nikkei stock average edged up 0.5 percent to a 15 month closing high on Wednesday, buoyed by more evidence of economic recovery in the form of better-than-expected U.S. factory orders but with gains limited by poor U.S. housing data.

European Stock Outlook: Shares turned negative in morning trade on Wednesday after hitting a 15-month high, with weaker energy shares on the back of a decline in crude prices outpacing stronger financial stocks

2008..

ASIA- DOWN N225I +0.25% HS +2.09% SSEC +0.45% FTSTI -0.12% AORD +1.02 %
EUROPE UP FTSE +0.40% DAX -0.27% CAC -0.03%  
US- UP S&P +0.31% DJIA -11% NASDAQ +0.01%    
THIS MORNING UP N225I +0.46% HS +0.62% SSEC -0.85% FTSTI -0.12% AORD +0.15 %
DOWN FTSE -0.33% DAX -0.09% CAC -0.15%  

Commodities Outlook: Monday close: The CRB Commodity Index was flat, remains flat in early Wednesday trade as EUR weakness creates USD strength, pressuring commodities

Crude Oil Outlook: Unchanged as of Tuesday's close and early Wednesday at around $81.50, may come under pressure due to EUR weakness and resulting USD strength, as well as its being near annual highs.

Gold Outlook : Essentially Unchanged from Monday, Tuesday's and early Wednesday, around $1125, may come under pressure due to EUR weakness and resulting USD strength, as well as its being near minor resistance levels

FOREX Outlook: 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 ECB announcement likely to pressure outlook for the euro and other major dollar counterparts, and boost the outlook for the USD

US Dollar Outlook: Gained slightly at the close of Tuesday, Steady or slightly gaining in early Wednesday trade vs. the EUR in the wake of the ECB announcement that it will not bail out Greece. This is likely to pressure the EUR and thus boost the US dollar. Again raising the "sovereign debt threat" of default or at least rising borrowing rates for Greece, and by implication, the other fiscally weaker members of the Euro-zone. However, markets may regard the announcement as merely

Euro Outlook: Euro Daily Outlook: Down yesterday, currently holding at yesterday's closing lows as markets weigh the latest news the ECB refusal to provide bailouts to Greece. This news is likely to weigh on the EUR, as will job news from the US later today if positive.

Greece announced Monday that it plans to cut its budget from 12.7 percent of GDP to 8.7 percent by the end of this year. Since part of the euro’s underperformance in January was tied to fiscal health of the country, the ECB announcement is no doubt an expression of concern that Greece must do more. The ECB has about a year before it raises collateral standards for member borrowers. Greek bonds may not qualify, making further Greek borrowing more expensive and further damaging its already weak economy.

Yen Daily Outlook: currencies rebounded sharply against the Japanese currency after investors finished up liquidating yen-selling positions, traders. Continuing to lose ground vs. the USD as of early Wednesday trade.

British Pound Daily Outlook: Up modestly in early Wednesday trade after 3 days of declines. Suffered a major drop yesterday after the Pimco fund said it was reducing exposure to UK bonds due to oversupply, and FoM Darling's comments suggesting that the UK is not yet out of recession (whereas the economies of other major currency groups are believed to have already bottomed out).PMI Services came out this morning at 56.8 vs. the 56.7 forecasted and 56.6 prior month, adding further support.

Australian Dollar Daily Outlook: Unchanged Tuesday and in early Wednesday trade.

New Zealand Dollar Daily Outlook: Unchanged Tuesday and in early Wednesday trade.

Canadian Dollar Outlook: Gaining on the USD despite relative USD strength yesterday, unchanged in early Wednesday trade

Swiss Franc Daily Outlook: Gaining on the USD, possibly as a result of anticipated EUR weakness, reducing the chance of SNB intervention.

CONCLUSIONS: S&P 500 essentially unchanged from Tuesday as of early Wednesday trade around 1128 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

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: Earlier we recommended avoiding long plays until it hits stronger support or breaks decisively above 1120. It did that Monday, and held Tuesday. Those not yet long should wait to see how US jobs data plays out. 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 1125, unchanged since Tuesday's close. 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, largely unchanged since Tuesday's close despite the ECB announcement that they would not aid Greece. Most traders apparently viewing this as a message to Greece to do more before next year's stricter borrowing policies make Greek government bonds unacceptable as collateral for ECB loans. Still sitting right around 1.4366 (see below), thus entry at this point for short play presents better than a 2:1 reward/risk ratio at current levels or higher 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 (01 Jan 06) AVAFX CHART

NZDUSD: Unchanged since Tuesday. The following still applies. 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: Unchanged since yesterday, the following still applies. 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: Currently at 1.0336, back near significant resistance at the 23.6% Fib level of 1.0359 A legit short play near current prices as long as the distance to the 38.2% level is at least twice the distance from your stop loss point, which should be just above the 23.6% level shown below, for a roughly 2/1 reward risk ratio. A worthy long play if the USD starts to reverse WHEN it breaks above 1.0376, with stop loss near the current price shown and target at around 1.0500.

USD/CHF DAILY AVA FX CHART ( 03 Jan 06)

GBP/USD: Best long USD play?

Short: Recommendation unchanged from yesterday. 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 (04 Jan 06)

OTHER HEADLINES

.

Papaconstantinou Says Greece Doesn't Need Aid, Stark's Comment Unnecessary

Asian Stocks Rise, Led by Carmakers, Banks; Copper Gains, Bond Risk Falls

Goldman to Convert Sumitomo Mitsui Preferred Stock After Bank Sells Shares

Hershey Board Members Are Said to Be Divided on Cadbury Bid to Rival Kraft

Intel Vulnerable as Consumers Shift From PCs to Phones to Browse the Web

Retailers May Report 1.8% Advance in December Sales on U.S. Holiday Buying

Hungarians Avoid Work, Favor Welfare Benefits as Unemployment Hits Record

Winter Weather Delays Flights, Threatens Crops From Florida to North China

Dodd Said to Not Seek Re-election, Joining Fellow Democrat Senator Dorgan

Iceland Government Says Icesave Veto Won't Trigger Default, Talking to IMF

Bloomberg.com

eaking News

Breaking News

(Seekingalpha.com)

U.S. Housing: The Big Picture

Why Economists Didn't Anticipate the Financial Crisis

Global Equities Move Sideways

European Central Bank: No Bailout for Greece

Jobs Week Wednesday: Four Key Releases and a 'Funeral'

U.S. Economy: Nothing to Be Optimistic About

Euro: More Losses Ahead

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.