Futures and FX Report 27/08/2012

US Markets

My observations below should be viewed as general advice and may not be right for you. 

In Friday’s report I stated; ““Tonight I wouldn’t be surprised if there was a bounce attempt out of this S&P500 level after a 2 day sell off”. This played out as US equities rallied straight off the open out of 1400 and closed just off the session highs. Equities were buoyed after rumours emerged late in the European session that the European Central Bank is considering setting a yield band target as part of the new bond buying program. To me it is more important to stress that markets take time to transition from uptrends into new downtrends, and this bounce sequence reflects this. The EURO spiked almost 50pips on this news but actually ended up giving back all those gains. 

All eyes will be firmly transfixed on Fed chairman Ben Bernanke as he delivers a speech at a meeting later this week in Jackson Hole. Thus it could well be a quiet week in build up to this event. Investors expect Bernanke’s speech will signal the central banks views on the prospects for further accommodative policy.  It was this same meeting in 2010 when Bernanke telegraphed a second round of Quantitative easing and no doubt equities are pricing in a similar event at these levels.

From a technical standpoint, the S&P500 has challenged and sold off from the key 1425 resistance level. I envision a short term range will now form between 1395 to 1420 before a more meaningful break either way. As I have continued to highlight, breath and momentum are waning at these levels and thus the uptrend is vulnerable. Please see my blog post here that goes into more detail on the waning internals and “breadth”: http://fpmarkets.blogspot.com.au/2012/08/futures-and-fx-report-22082012.html.

The key support level for me remains 1395 and breaches of this would confirm a deeper pullback and possible new trend lower. My key short term levels both the DAX and the EUROSTOXX are being tested and sellers in those markets are gaining increasing control.  

S&P500 Daily:

Double Top pattern still in play. 

Emini S&P500 15mins:

Price bounced right out of the low end of the range and support zone. Only a breach of 1395 would confirm a deeper pullback and possible trend reversal. Short term traders should continue to focus on trading the range. 

Russell Daily:

I have often talked about divergences and non-confirmations across markets. The Russell 2000 is an interesting example of this. Despite the S&P500 and DOW challenging their April highs, the Russell has failed to follow through to the upside. The Russell comprises a broader collection of growth and “beta” stocks thus the inability to follow through is a sign of a weakening trend. An ascending triangle pattern could be forming here if that upward sloping trendline breaks. 

S&P500 Emini Key Levels:

Support Levels: 1400/1395,1370

Resistance Levels: 1415/1420

Europe

A late-session rebound pushed European stocks into positive territory on Friday, but an 11-week winning streak for the region's equities benchmark was broken.Markets took a late turn higher as a letter from Federal Reserve Chairman Ben Bernanke to a high-ranking congressman showed the central banker seeing scope for additional monetary easing to underpin the leading global economy. Meanwhile, Reuters reported that the European Central Bank is considering a plan to set band targets on sovereign yields. For the week, the pan-European index closed down 1.8%, its first such loss since early June

From a technical standpoint, I have shown significant resistance in both the DAX and Eurostoxx Daily charts of late. Price action is now confirming this with some significant reversal candles on the Daily charts. The short term timeframes have also been unable to hang onto recent gains after breaking out of a solid consolidation pattern. This implies a potential failed move higher which shows that there is no underlying strength behind the recent uptrend. On Friday’s report I said:

 “A strong move back below DAX 7000 and Eurostoxx 2400 would signal a potential reversal and end to this uptrend....keep these firmly on your radar for potential breakdowns.”

DAX 7000 was breached and now the key 2400 Eurostoxx level is being tested and has provided a short term bounce for now.

Eurostoxx Daily:

This is a clear resistance zone at 2500. Several reversal candles have confirmed this zone and now offer potential low risk stop levels for the shorts. 

Eurostoxx 15mins:

2450 was broken which is concerning for the bulls. 2400 is a line in the sand and could provide potential low risk long opportunities tonight in the short term. However, a solid close below here would confirm a bigger picture pullback in play to me. 

DAX 60mins:

After a 10 day consolidation pattern, the DAX broke out above 7000 but couldn’t hold onto gains and has now sold off right back into the previous range. This is a sign of weakness as a break to new highs was met with no additional buying. 

FX Majors

The Australian dollar and the EUR both spiked during Friday’s session on news that the European Central Bank is considering setting a yield band target as part of the new bond buying program. Interestingly, all those gains have been given up and AUD is now testing recent lows at $1.037. Indeed, AUD has come under real pressure early today with HSBC cutting their China 2012 GDP forecast to 8.0% from 8.04%.

From a technical standpoint, AUD struggled at the formidable resistance zone that has been shown on the Daily chart at $1.06. Price subsequently built a range from $1.04 to $1.06 and we are now testing and breaking the low end of this range. Thus we have clearly seen a transition from an uptrend into consolidation pattern and now we await confirmation for a possible new downtrend. A solid break of 1.04 would confirm the beginning of this. I also continue to show the AUDJPY pair as this is a key risk asset and price has broken down through some key supports, indicating a deeper pullback is underway.

AUDUSD Daily:
AUD failed out of the 1.06 resistance level and has now broken down through the upward sloping trendline. It has taken time but the market is slowing transitioning. 

AUDUSD 60mins:
Despite the FED minutes and the continued hopes of “QE3”, AUD continues to grind lower and has formed a possible short term Head and Shoulders or topping pattern. This is now being triggered on breaks of $1.04

AUDJPY 60mins:

An attempted breakout above support that has been slapped back down. Failed breakouts are indicative of underlying weakness.

EUR 60mins:

EUR remains the fly in the ointment. The breakout above 1.24 offered a low risk opportunity to play this base pattern. As long as price remains above this level, the short term trend remains up and dip buyers should look to this level with tight stops. 

Commodities

There seems to be a lot of euphoria and commentary now surrounding Gold. No doubt we have seen a strong breakout on the short term timeframes but we are now testing key overhead resistance as shown on the Daily chart. This could provide a short term stumbling block after a short term extended run.

Gold Daily:

Breakout above the first major resistance shelf. Now testing the key downward trendline. 

Gold December 60mins:

Breakout above the recent resistance zone and follow through. However, from a risk/reward perspective, price has probably moved too high for most breakout traders and is now at solid resistance. Thus look for pullbacks and possible consolidation patterns to enter this breakout setup.  

If you would like to chat live and interact daily with a Senior FP Markets trader, please go to http://www.cfdtradersedge.com.au/. 

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Austin Mitchum
Senior Market Analyst

First Prudential Markets
http://fpmarkets.blogspot.com.au/

Email: a.mitchum@fpmarkets.com.au
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