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June 7th – 11th Quick Review/Preview: Stocks, Commodities, Forex


 

See The Week Ahead: Stocks, Commodities, Forex - 3 Key Market Drivers June 7th – 11th , for details on prior and coming week market movers and trading ramifications

 

Every Market’s Got A Hungary Heart

Summary  

 

Coming week’s likely market movers
  1. EU Debt Crisis-risks to watch
    1. Further news on Hungary, other new sovereign debt skeletons popping out of the closet
    2. Government stability
    3. Progress in deficit cutting, especially

                        --political and labor opposition

                        --GDP and employment slowdowns from deficit cutting

 
            4.Bank stability
2.Wildcards: Watch for updates on
  1. China construction and housing data              
  2. US: banking scandals, housing market and affects on bank finances, BP oil spill

3. Economic Events: US Retail Sales, RBNZ interest rate decision and comments, ECB, BoE rate statements

 

Market Overview

Stocks & Overall Risk Appetite

-Overall down over 2% for the week, the bellwether S&P 500 down 3.6%

-Fundamentals-Bearish:

--None of the fundamental drivers of the current downtrend for risk assets noted above are near resolution

-Technicals-Bearish

--Stocks finish their third week below their 200 day moving average

-          - The bellwether S&P 500, our single favorite picture of risk appetite, is now mere days away from its 50 day moving average crossing below its 200 day moving average, thus forming a ‘death cross’ that indicates a longer term downtrend ahead. The Shanghai index, which typically leads the S&P, formed this over 2 weeks ago, and the Dax formed it over a week ago. See Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets for details.

-Given the extreme bearishness, risk assets could get a bounce on any kind of positive news, especially from the EU

-Given the bearish fundamentals and technicals, swing traders should be using any upside movements to establish new shorts on risk assets or exit remaining long positions

Commodities

Oil: WTI $71.51, -3.33%, Brent  $72.09, -2.61%, Next support $70

Fundamentals and Technicals similar to that of stocks, at current rates of decline due to form death cross in the coming days, next support at $69-$70, resistance at $74-5.

Gold: $1217.77, +0.45, rising as the EUR falls, providing fundamental and technical support. Near term range $1180-1240, but that resistance could be broken fast if there is any major bank or country at serious near term default risk.

Forex

See below for details on each major currency

USD & EUR Dollar Weekly Outlook: Hungary Default Threat Overrides All Else, US Jobs Report Adds To Fear

EURUSD Bias: Bullish-The same forces are moving them (albeit in opposite directions) so it makes sense for now to discuss them together

-Bad EU news overrides bad US jobs data

-EURUSD crashes through strong supports of both its historical midpoint at 1.2130and 1.200, no major support until 2005 low of 1.1640, though 1.1800 could be support in near term, especially if EUR can get any kind of positive news

- SNB abandons support faced with overwhelming EUR bearishness, which accelerates the EUR’s drop

- Dollar to four-year highs vs. the Euro on official threat of Hungary default, unfounded rumors of big French bank in trouble

- ECB has no motivation to support EUR while inflation threat low and export help is needed, though expect a few supportive words to calm Chinese

- ECB warns of another nearly €200 bln in bank losses

- Overnight deposits with the ECB climb to record €320 bln as EU banks cut back in overnight interbank lending

JPY Weekly Outlook: BoJ Intervention Threat Could Limit JPY Gains

Bias: Bearish

-JPY rising despite new PM Kan weak Yen preference as risk aversion crowds out other considerations

-BoJ intervention threat grows as USD/JPY nears 87, endangers exports

GBP Weekly Outlook: Seeking Support on Risk Aversion, BoE Rate Decision Volatility Possible

Bias: Bearish

-Sits in the middle of the risk spectrum, likely to move accordingly, though has little to offer other than it isn’t highest risk and isn’t the Euro

-GBP likely to move with risk appetite as few events of note beyond BoE rate statement

-Thus GBP likely to gain vs. EUR, AUD, NZD, lose vs. safe havens, CAD

CHF Weekly Outlook: Pent up CHF Gains Could Send the Pair Lower

Bias: Bearish

-SNB abandons intervention, CHF to resume role as #3 safe haven

- SNB ends intervention efforts, allows the CHF to decouple from the EUR, pent-up CHF demand could see it gain

USD/CHF could correct lower to around 1.1160 as near term support.

CAD Weekly Outlook: Pulled Between Risk Aversion Vs. Lure of Rate Increases

Bias: Neutral

-Canada raises interest rates 25 bps to 0.50

-Improving data encouraging, Canada has healthiest consumer spending, of the major currencies, improving employment

-Traders price in 64% chance of another increase in the coming months

-Price action since April suggests the USDCAD should continue to gain ground if as long as risk aversion prevails

AUD Weekly Outlook: Flight To Safety Renders AUD The Worst Performer Of The Majors

Bias: Bearish as long as risk aversion dominates sentiment

-AUDUSD nearing strong support of 200 week EMA near $0.8200

-Recent bearish action makes it ripe for a bounce along with other risk asset

-The most vulnerable of the major currencies to deterioration in China

-Bearish outlook of the bellwether S&P 500 suggests the AUD and other risk assets have much more downside ahead over the coming months

NZD Weekly Outlook: Moving With Risk Sentiment, RBNZ Decision Rate Statement Significant

Bias: Bearish

-RBNZ rate increase expected, but the key will be whether the accompanying statement is hawkish enough to convince markets that more is ahead

-Turmoil in EU and threat of China slowdown may cause the RBNZ to delay the rate hike, likely bringing new NZD downside

-USDNZD sitting at strong support of the 200 day EMA near $0.6700

-Above comments for the AUD apply for the NZD – particularly vulnerable to China slowdown, bearish overall risk picture is bearish for the NZD

Disclosure: No Positions