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FOREX, COMMODITIES, STOCKS OUTLOOK June 7th: Cliff's 2 Minute Drill 10:30 GMT


Stocks: Prior day: Asia, Europe, US down. Today: Asia, Europe down. Stocks down on Friday’s news of another sovereign default threat thus far ignored by mainstream financial press, Hungary, as the poor US monthly jobs report Friday. The resulting selloff, continuing in Asia and Europe today, reinforce the bearish indicators we pointed out last week in our special report: Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets

- US Bonds: Treasuries slightly lower, yield up slightly from 3.30 to 3.3340 as rising demand for risk assets eases bond prices.

- Commodities: Oil futures up from $72 to nearly $74, and continuing higher to around $74 in early Thursday trade GMT, gold down slightly as fears about the EUR eased somewhat.

- FX: Overall bias against safety currencies [JPY, USD, CHF in order
of safety appeal] vs. risk currencies [AUD, NZD, CAD, EUR, GB in order of risk
appetite appeal], mostly according to a currency’s place on the risk spectrum, but with the EUR and CHF getting a technical reaction bounce higher

- Main events: MON: AUD ANZ Job Advertisements m/m EUR German Factory Orders m/m, CAD BoC Gov Carney Speaks TUES: USD: Fed Chairman Bernanke Speaks CAD Housing Starts WED:AUD Home Loans m/m, NAB Business Confidence, GBP Trade Balance CNY New Loans USD Fed Chairman Bernanke Testifies, Crude Oil inv., Beige Book, NZD Cash Rate/Press Confr/Rate St. THUR: AUD Employment Change/Rate, RGBA Gov Stevens Speaks, CNY Trade Balance EUR French Ind. Prod., Minimum Bid Rate, Trade Balance, ECB Press Confr. GBP Asset Purchase Facility, MPC Rate St. Official Bank Rate USD Unemployment Claims FRI: CNY CPI y/y, Fixed Asset Inv., Ind. Prod y/y PPI y/y, GBP PPI Input m/m USD Core & Retail Sales, Prelim UoM Consumer Confidence

Big Theme: Risk Appetite Gone Again? Friday’s panic selloff in risk assets on news about Hungary and poor US jobs reports turned a modest weekly gain for risk assets into another losing week, further entrenching the downtrends in virtually all risk assets over the past months. For details see out weekly outlook reports: The Week Ahead: Stocks, Commodities, Forex – 3 Key Market Drivers June 7th – 11th (and abridged version for those pressed for time), June 7th – 11th Quick Review/Preview: Stocks, Commodities, Forex, See also our latest special report: Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets in which we discuss how key risk asset charts show 3 major signs of a more prolonged bear market ahead.


US: Down – Disappointing US jobs reports sent markets opening modestly lower, but they dropped hard when Hungary’s new government announced that the prior administration had hidden a much more dire financial situation and that default was a genuine risk.

All three major indices finished the day down over 3% for the 6th 2%+ move in the past two weeks, a bearish sign of nervous market. US indices are near 8 month lows.

Stocks began Friday up over 1% on the week, but with each of the major indices falling over 3% stocks finished with a loss of more than 2% -- the fourth weekly loss of more than 1% in six weeks.

US Bonds: Up on Friday - Treasuries were predictably higher as the huge stock market selloff in stocks sent investors fleeing into bonds in a flight to safety move, yields on the benchmark 10-year Note spiking down a full point from 3.3010% Thursday to 3.20%.

Asia Stock Outlook: Down; Japan's Nikkei average fell nearly 4 % Monday after gaining roughly the same amount the prior Thursday, marking its biggest daily drop in 14 months as investors, in a broad selloff following up on US losses on fears of Hungary default and a further deterioration in Europe.

The threatened default by Hungary and ups fears of a collapse in the Euro as traders feared another bailout and ECB spending spree may be needed to maintain stability. Major indexes across Asia reflected the knock-on effect of Friday’s action in New York with similarly steep plunges.

European Stock Outlook: Down – European shares fell sharply on Monday for the second straight day on worries over euro zone debt problems after Hungary said its debt problems were similar to Greece on Friday, with banks the major losers. With uncertainty about which European banks have significant Hungarian bond exposure, the stability of all comes into question.

Commodities Outlook Friday and early Monday trade GMT: Mixed – gold and Nat. Gas up, oil and silver down since Friday

Crude Oil Daily Outlook: Up- Oil futures down from $70.82 Friday to $70.37 in early trade Monday as Asia closes and Europe opens around 9:00 am GMT Crude oil was a primary victim of the sell-off. The July futures contract traded steadily lower throughout the session. It closed down 4.2% at $71.51 per barrel after bouncing off the $71 level just before the close of the pit trade.

Per Reuters, a Goldman Sachs report expected crude oil prices to move into an $85 to $95 trading range in the second half.

Gold Daily Outlook: Little Changed- On Friday at the close in the USgold was also a beneficiary of a flight to safety. It closed pit trade with a 0.6% gain at $1217.20 per ounce, and is slightly down from that in early Monday trade, just above $1216.

FOREX Daily Outlook in Friday and early Monday trade GMT: Clear bias to safety currencies as fear returned with a vengeance Friday after a weak US jobs report was followed by news of new European sovereign default risk from Hungary.

While we were aware of potential trouble there and elsewhere in Eastern Europe (see here for more) for some time, the region had been of the radar for the mainstream financial press, and thus the news that sovereign debt was not limited to the PIIGS block (rename ‘em ‘PHIIGS’

US Dollar Daily Outlook: Up vs. all except for the JPY

Euro Daily Outlook: Down vs. the USD, JPY, CHF mostly unchanged since Friday vs. the CAD, GBP as the EUR recovers its Friday losses against these in early Monday trade, up vs. the AUD, NZD.

Last week we stated: “With no improvement in the EUR’s underlying fundamental weaknesses, we expect the EURUSD to head back down to test recent support around 1.2200 -1.2000 near term. It has already broken 1.2400 support Monday and remains well below it, currently around 1.2261. The Euro has ceded all of its earlier gains Friday (May 28th) once the news broke of the Fitch credit rating downgrade to Spain, after which the euro fell roughly 0.8% to $1.227. “

However, the news that Hungary is a sovereign default threat, raising the suspicion that there are other such cases in Eastern Europe, (there are, also in the Middle East, and South America) sent the EURUSD crashing through what had thus far been solid support at $1.2000, and currently holding around $1.1937, and is generally moving up from Friday’s close thus far today, though it remains down or even vs. all except for the AUD and NZD.

Yen Daily Outlook: Up vs. all on risk aversion. No major data, up on sheer sentiment as Hungary’s default threat and a stagnating US employment picture feed the flow to safe haven assets.

British Pound Daily Outlook: Down vs. the JPY, USD, little changed since Friday vs. the EUR, CHF, up vs. the AUD, NZD, CAD, as the GBP behaves in line with its middle ranking in the spectrum of risk currencies.

Australian Dollar Daily Outlook: Down vs. ALL -the JPY, USD, GBP, EUR, NZD, CAD, CHF as sharply falling risk appetite Friday into early Monday keeps the AUD firmly in its down trend.

The AUD may be done for now with rate increases but it still is the ideal buy for carry trade with its highest short term rate, and also posted its 5th straight quarterly year on year GDP increase. However, new risk aversion from Friday’s news on Hungary and the US jobs picture, feed risk aversion, concerns about a slowing China and its effects on the AUD remain in the background but are not forgotten.

New Zealand Dollar Daily Outlook: Down vs. all except for the AUD

Canadian Dollar Daily Outlook: Down vs. all but the AUD and NZD

Swiss Franc Daily Outlook: Down vs. the JPY, USD, little changed since Friday vs. the GBP, up vs. all others as a risk aversion sends the EUR and other risk fx lower. Note that as of Friday the SNB appears to have abandoned attempts to support the EUR vs. the CHF in the face of overwhelming fear. No doubt it will attempt to re-intervene on low liquidity days, but for now at least, the battle is lost while fear about the EU and environs remains heightened with the new sovereign debt default of Hungary.

CONCLUSIONS & Big Picture: Friday’s rout of risk assets on news about a possible Hungary default, (also exacerbated by bad US job figures, keeps the multi-week trends firmly down for risk assets, though with such strongly negative sentiment risk assets could always catch a short term bounce higher on any kind of mildly positive news. Beware, however, as we note in our recent special report: Three Powerful Bearish Signs: S+P 500 Heading To Around 830, Short Risk Assets. Stocks are the key barometer for risk assets, with the S&P 500 the most indicative of overall risk asset trends. It is showing 3 major bearish signs of more downside to come for the coming months( long term down trend, death cross, average percent drop below major moving averages still suggests more decline). See the above links to out weekly outlook reports for more on likely market moving forces for the coming week and beyond.

Trade Ideas

EURUSD Short: Currently around 1.1950, the1.2200 major support level COLLAPSED in the wake of Friday’s selloff on news of the possible Hungary default. No real support before 1.1800 – 1.1700 range. Still not too late to enter the party on the short side if you’re careful. Entry point at/near 1.1950, target just above 1.1700, stop loss just above 1.2000, for risk:reward ratio of nearly 3:1


CRUDE OIL Short: Currently around $71 at the 50% Fibonacci retracement level. prices collapsed Friday from $74 and strong resistance both from this price level and the 61.8% Fibonacci retracement level from the lows of July 2009, now at $71.25 Death Cross now officially forming as the 50 day – 200 day EMA and now touch, suggesting the trend has legs (short bounces along the way, off course). No significant multi-day resistance until just above the 38.2% Fibonacci resistance at around $68.20.

We exited at out profit target from our last crude trade at just above %71. Next trade:

Entry point: around $71, first profit target exit just above $68.20, stop loss $$71.60, risk:reward better than 3:1.