The following is an abridged version go to fxmarketanalysis.wordpress.com for today’s full version for further details and illustrated trading opportunities as numerous instruments sit at key support/resistance for low risk high reward entry points
Stocks: Prior day: Asia, Europe, US down. Today: Asia, Europe down. The nascent reaction bounce rally hit a wall of bad news on US housing, European banking, Yuan revaluation doubts, and technical resistance that is continuing to send markets lower for the second day.
- US Bonds: With stocks continuing lower again yesterday, prices safe haven Treasury bonds rose with the yield on the benchmark 10-year Note fell from 3.1660% of the prior day to below 3.10 for its first time in almost one month before it ticked higher in afternoon trade to close at 3.1150%.
- Commodities: Down, generally backing off from strong resistance levels after recent risk asset rallies
- FX: Overall bias to 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 with exceptions as noted below
- Main events: MON: EUR: ECB Pres. Trichet speaks, CHF SNB Chairman Hildebrand speaks TUES: CHF Trade Bal. EUR German Ifo Bus. Climate, Current Account CAD CPI m/m, GBP Annual Budget Release USD Existing Home Sales, NZD Current Account, WED:EUR Gfk German Consumer Climate Flash Mfg & Services PMIs for Germany/France/EZ, GBP MPC Mtg Minutes, CAD Retail Sales USD New Home Sales, FOMC Statement, NZD GDPq/q THUR: JPY Trade Bal. AUD CB Leading Index, USD Durable Goods Orders m/m, Unemployment Claims FRI: JPY Core CPI y/y, USD Final GDP, SAT ALL Day 1 G20 Meetings
Big Theme: Risk Appetite Off Again? The nascent reaction bounce rally hit a wall of bad news on US housing, European banking, Yuan revaluation doubts, and technical resistance that sent markets lower yesterday, though thus far today European markets are attempting a partial recovery. Markets boost the JPY on risk aversion, also GBP on the new austerity budget to cut the UK deficit – a message for the US?
US: Down – Tighter range trading ended in a modest loss for the S&P 500 as the worst new home sales figures on record acted as a drag on trade and the FOMC failed to deliver any positive news to market participants.
Reports that new home sales for May fell almost 33% month-over-month to an annualized rate of 300,000 units sent markets to session lows. Not only was that far below the rate of 430,000 units that had been expected, but it was the lowest rate since records began over 45 years ago.
Though the stock market showed some resilience and trimmed its losses, it didn't advance until the afternoon release of the latest policy statement from the Federal Open Market Committee (FOMC). The FOMC provided no specific reason for the move higher, as it maintained the target range for the federal funds rate at 0.00% to 0.25%, as forecasted. It also stated that exceptionally low levels of the federal funds rate are expected for an extended period.
For our take on the coming weeks and beyond, for planning your big picture strategy, see: Likely Market Direction For The Coming Weeks And Q4
US Bonds: With stocks showing continued weakness, US Treasuries had a strong session. The yield on the benchmark 10-year Note fell from 3.1660% of the prior day to below 3.10 for its first time in almost one month before it ticked higher in afternoon trade to close at 3.1150%. Treasuries encountered some selling after results from an auction of 5-year Notes showed that dollar demand fell below $100 billion for the first time in nine months and the auction's bid-to-cover came in below 2.6, which is less than the average ratio for the past eight sessions.
Asia Stock Outlook: Down at the close, as a wave of short-covering petered out in late trade and technical charts suggested significant gains were likely to be difficult in the face of successive resistance levels and that further falls could not be ruled out, considering recent news on bad US housing data, the downbeat FOMC statement, euro zone bank concerns after French bank Credit Agricole (CAGR.PA) reduced profit targets for its struggling Greek unit Emporiki (CBGr.AT) ,reported 400 million euro write-down as Greece fights its debt load.
European Stock Outlook: Down at mid-day – European shares down Thursday morning, with banks and miners lower, on the same concerns sited above that weighed on US and Asian markets.
Commodities Outlook Wednesday and early Thursday trade GMT: Down-generally backing off from strong resistance levels as stocks and other risk assets pull back against technical resistance, rising Yuan, concerns about European banks and poor US housing data.
Crude Oil Daily Outlook: Down- Oil futures followed stocks down again Wednesday and into Thursday after testing key $80/bbl resistance early for the reasons noted above that are pressuring risk assets, currently around $75.80, down from about $77.50 24 hours ago in mid-morning European trade after failing to hold gains in early Asian trade.
Now sitting well below its 76.4% Fibonacci retracement level midway down to its 50% level. Don’t try to enter short for a good low risk entry point long or until it either breaches the 50% level OR rebounds back to the 76.4% level and either breaches (then go long) or turns back down ( new short entry point). See Chart below.
As we’ve noted in the past, the widening death cross on the daily chart (and of other related risk assets) suggests more downside for the weeks ahead, as does this return to below the 200 day moving average at about $78. It has also violated its uptrend line.
See daily chart below for illustration.
Gold Daily Outlook: Down – Futures lower, continuing to follow the EURUSD’s down, suggesting gold continues to move mostly on EUR sentiment. NB: Gold has now decisively retreated from its upper Bollinger Band. OVER THE PAST YEAR THIS HAS MEANT A TEST DOWN TO ITS 50 DAY MOVING AVERAGE, currently at 1211.63.
See the below chart for reference
FOREX Daily Outlook Wednesday and early Thursday trade GMT:Bias to safety currencies with major exceptions, JPY up vs. all on risk aversion, GBP second strongest positive market reaction to its deficit cutting- a message to the US? CHF also relatively strong, NZD the best of the otherwise weak commodity dollars.
US Dollar Daily Outlook: Down vs. the JPY, CHF, GBP, up vs. the EUR, AUD, CAD, NZD – exactly the same as yesterday. Moving mostly per its place in the risk rankings in an overall risk aversion day thus far but GBP stronger as markets react well to the new UK emergency budget to reduce the deficit, and the CHF continues to make up for lost ground as the #3 safe haven.
USD PAIRS AT MAJOR INFLECTION POINTS FOR SAFE LOW RISK ENTRIES LONG OR SHORT– OUR BIAS TO RISK AVERSION AS PER THE S&P 500 TREND NOTED ABOVE - Updated for June 24th. See the Full Length version lots of excellent entry points for multi day swing trades especially with the AUDUSD AND NZDUSD – BOTH READY TO ROLL BACK OVER
Euro Daily Outlook: Up vs. the CAD, AUD, down vs. the JPY, GBP, NZD, CHF, USD. Suffering with risk aversion and relative NZD strength.
Yen Daily Outlook: Up vs. ALL except steady vs the GBP
British Pound Daily Outlook: Up vs. all again, except steady vs. the JPY as risk aversion for a second day strengthens the JPY.
Australian Dollar Daily Outlook: Down vs. all except the CAD on an overall risk aversion day,
New Zealand Dollar Daily Outlook: Down vs. the JPY, USD, CHF, GBP, up vs. the EUR and other commodity dollars
Canadian Dollar Daily Outlook: Down vs. all
Swiss Franc Daily Outlook: Up vs. all except the GBP, JPY
CONCLUSIONS & Big Picture: The nascent reaction bounce rally hit a wall of bad news on US housing, European banking, Yuan revaluation doubts, and technical resistance that sent markets lower yesterday, though thus far today European markets are attempting a partial recovery. Markets boost the GBP on the new austerity budget to cut the UK deficit – a message for others? See the USD section and below charts for numerous good entry points for multi-day swing trading as the recent rally and its beginning reversal leave many instruments ready to resume the longer term downtrend. Also see comments and charts on Oil, gold trading opportunities.
DISCLOSURE AND DISCLAIMER: OPINIONS EXPRESSED ARE NOT NECESSARILY THOSE OF AVAFX, AUTHOR HAS NO POSITIONS IN ABOVE INSTRUMENTS.