Futures and FX Report

US Markets

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

Let’s not make a mountain out of a mole hill, but certainly I am watching the recent price action in offshore markets with growing interest. US equities fell overnight due to a combination of disappointing Chinese manufacturing data, increased concern that European leaders are not making progress in solving the regions debt crisis, and a big sell off in Hewlett Packard after missing earnings estimates. 

The reality is that the technical backdrop has been in place with double top zones and waning breadth figures as stressed in my recent reports and blogposts here: http://fpmarkets.blogspot.com.au/2012/08/double-tops.html. No doubt I have been cautious this rising market for a while and have been somewhat early. However, we are now seeing initial signs of a reversal and the real catalyst will come on the 31^st August when Ben Bernanke speaks at Jackson Hole. Personally, I would be surprised if the FED committed to a QE3 type event with the S&P500 trading at these elevated.

No doubt it is too early to start calling a top as the short term trend remains up. The key support level for me remains 1395 and breaches of this would confirm a deeper pullback and possible new trend lower. My key levels in both the DAX and the EUROSTOXX were breached overnight and this is not a healthy sign in my opinion. No one likes a bear but I am just revealing what is in front of me. 

Tonight I wouldn’t be surprised if there was a bounce attempt out of this S&P500 level after a 2 day sell off. As ever, trade the levels and heed the price action. 

US durable Goods Orders out tonight. 

S&P500 Daily:

Another reversal candle right out of the Double Top zone.

Emini S&P500 240mins:

The 1420/1425 zone proved to be formidable resistance and a pullback has ensued. The short term target for a deeper pullback is down to the 1370 zone. 

Emini S&P500 15mins:

1395 to 1400 is key support coming into tonight. After a 2 day sell off back into the uptrend and support, there may be an attempt to buy this from the trend followers. If the market cannot hold this zone, this puts the short term trend in jeopardy.

S&P500 Emini Key Levels:

Support Levels: 1400/1395,1370

Resistance Levels: 1415/1420

Europe

European stocks dropped for a second day as German Finance Minister Wolfgang Schaeuble damped optimism that Greece will get more time to cut its debt and as bond yields climbed in Spain. Early gains were also undercut after a preliminary August Eurozone PMI data indicated private-sector activity in the region continued to contract at a rapid pace.

Risk-sensitive sectors, such as banks and resource firms, were among the biggest movers on European stock markets.  Barclays gave up 1.6% and Royal Bank of Scotland Group fell 3.3%. French oil group Total lost 1.1% as Moody's Investors Service changed the outlook on the firms credit rating to negative from stable.  In Germany, utility firms weighed on the DAX index, which shed 1% to 6,949.57. RWE AG fell 2.1%, while EON fell 1.6%.

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. 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. In yesterday’s report I said:

 “A strong move back below DAX 7000 and Eurostoxx 2400 would signal a potential reversal and end to this uptrend. These keys levels were tested and held overnight so keep these firmly on your radar for potential breakdowns.”

DAX 7000 was breached and now the key 2400 Eurostoxx level is being tested tonight.

Tonight we have the Samaras-Merkel meeting for potential catalysts.

Eurostoxx Daily:

This is a clear resistance zone at 2500. A strong reversal candle yesterday marks the beginning of a potential Head and Shoulder pattern.

DAX Daily:

Reversal candle and failed breakout above this key downtrend line. 

Eurostoxx 15mins:

2450 was broken last night 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.

FX Majors

The Australian Dollar saw a sharp pullback last night out of the 1.055 resistance level due to a weak Chinese PMI number and with risk assets coming off across the board. AUDJPY was particularly weak and breached the key 82.20 support level. However, despite this the EUR held in relatively well and traded from a low of 1.253 to a high of 1.259 during New York trading. 

From a technical standpoint, the Australian Dollar is on the cusp of a breakdown if 1.04 is breached. I have talked at length about the exhaustion candles and strong resistance zone at 1.06. Markets take time to transition from uptrend to new downtrend and this is what we have seen with this pair. Potential additional evidence is shown by the AUDJPY which is also showing weakness out of a formidable resistance zone. This pair is always a lead indicator for risk assets.

AUDUSD Daily:
After failing out of the 1.06 resistance level, AUD has hit and bounced off the upward trendline. The low of this candle at 1.04 thus becomes a key marker. 

AUDUSD 60mins:
Despite the FED minutes, AUD failed once again out of the upper resistance area at 1.055. There remains a possible short term Head and Shoulders or topping pattern in play. This will be triggered only on a break of 1.040.

AUDJPY Daily

This is the Daily resistance zone that I have shown in the past. Price has now reversed out of here with consecutive bearish reversal candles. 

AUDJPY 60mins:

Last night, price broke down through this key support zone. Note the potential ending wedge pattern.

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. Thus look for pullbacks and possible consolidation patterns to enter this breakout setup.  

 

Contact:
Austin Mitchum. Senior Market Analyst

First Prudential Markets

Email: a.mitchum@fpmarkets.com.au
Office: +61 2 8252 6800 Ext 120
Mobile: +61 0431547026