FP Markets: Futures and FX Report 29/08/2012

US Markets

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

A rather dull and directionless session overnight in the US markets as equities spent the majority of today's session within points of the unchanged line. The August consumer confidence report printed at 60.6, which was the lowest level in nine months. Following the report, stocks briefly turned lower before snapping back to the unchanged line where they held for the remainder of the session. All eyes remain on Friday where Fed chairman Ben Bernanke delivers his speech at Jackson Hole. Thus volume could continue to remain light until this event with traders not willing to take any major bets ahead of this.

Interestingly, an FP Markets client has informed me that the volume in the SPY on Monday was the lowest since 25/4/2011. It was 5 trading days after this event that the market put in a major top on 02/05/2011. Just saying....

From a technical perspective, US indices are still challenging their respective April 2012 highs forming possible Double Top patterns. In the short term, a range has built from 1395 to 1420 in the S&P500. We have seen a small reversal at the top end of this range but there has been no meaningful follow through to the downside yet. Traders need to focus on these levels until clear breakouts either way which is likely to come on Friday.

On the economic calendar, US GDP figures are out tonight.

S&P500 Daily:

Double Top pattern is still in play

Emini S&P500 15mins:

Here are the clear boundaries I am looking at. Price hit and reversed out of 1415 but there has been no follow through to the downside yet. Look to fade these boundaries until clear breakouts either way.

Emini Nasdaq 15mins:

A potential double top pattern in play should price hit 2790/2800 and reverse to the downside. Traders should look for bearish reversal candles and price action as confirmation.

S&P500 Emini Key Levels:

Support Levels: 1400/1395,1370

Resistance Levels: 1415/1420

Europe

European stock markets suffered broad-based losses Tuesday, after Spain's Catalonia region said it would ask for a bailout and as investors fretted about the slowdown in global economic growth after Japan lowered its growth forecast.Spanish stocks tumbled after Catalonia, Spain's most indebted region, said it would ask for 5.02 billion Euros ($6.28 billion) in financial aid as it struggles to pay for services such as hospitals and schools. In France, steelmaker ArcelorMittal lost 2.7%, weighing on the CAC 40 index. The benchmark index fell 0.9% to 3,431.55. German stocks were lower overall despite better-than-expected consumer-sentiment data. The DAX 30 index lost 0.6% to 7,002.68.

As well as Ben Bernanke’s speech on Friday, there are 3 major upcoming macro announcements within Europe that could have significant impact on markets; the German court decision on the constitutional validity of the Euro bailout funds; the ECB announcement on its Spanish bond buying program (6^th September); and the report by international creditors on Greece’s fiscal progress.

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 are trading within a range but the inability to hang onto recent gains after breaking out of a solid consolidation pattern concerns me. This implies a potential failed move higher which shows that there is no underlying strength behind the recent uptrend. Please see a post I put up today in regards to “failed patterns”: http://fpmarkets.blogspot.com.au/2012/08/the-most-important-rule-in-chart.html.

2400 remains the key level in the Eurostoxx. Breaks of this would confirm a potential deeper correction lower. There is a potential Elliott wave count shown below that indicates a bearish reversal ahead but this would need to play out very soon.

German CPI numbers are out tonight.

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:

A potential 5 down and 3 waves move up. This implies a bigger picture trend change. Aggressive traders could look to short this with stops above the previous highs. However, the key point to stress is the solid 2400 support zone and until this breaks, price is within a range.

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. 6900 remains key support.

FX Majors

Sharply lower borrowing costs at two euro-zone auctions helped the euro gain Tuesday, as investors became increasingly confident the European Central Bank will initiate a new program to help the region's bond market. Helping the auctions, ECB President Mario Draghi said no ECB members will be present at a Jackson Hole summit of central bankers on Aug. 31, a move some market players took as indication Europe's central bank was getting ready to announce a new initiative at its Sept. 6 meeting. EUR rallied from 1.250 to a high of 1.257 come the end of New York Trading.

The Australian dollar continues to underperform and was only slightly higher versus the US dollar Tuesday, trading at US$1.0378 from US$1.0369. AUD remains in a short term downtrend and has triggered a potential short term Head and Shoulders topping pattern. As long as price remains below 1.044, traders should continue to focus on this downtrend with a first target into 1.02. There is minor support coming in at 1.035 and breaks of this will increase momentum to the downside. AUDJPY, a key risk asset, continues to grind lower after the “failed breakout pattern” and the target is also still someway lower.

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 has been triggered on the break 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:

Of late I have continued to show the bullish breakout pattern in EUR above 1.24. Yesterday traders took advantage of a small pullback to enter into this short term uptrend. Targets for this move are up to 1.2650/1.27. Only a break back below 1.24 would be bearish.

CHFUSD 60mins:
An interesting Topping pattern and breakdown through the 97/97.50 support zone. The targets for this move are down to 0.94 and potentially lower thus any retests back into this resistance zone could provide an interesting low risk setup to join the new trend lower.