Futures and FX Report

US Markets

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

US Indices gapped down on the open following the lead of weak trading in Asian and European markets. Headlines out of Europe indicated the International Monetary Fund sees a "major challenge" in implementing measures for Greece. Another comment which rattled the markets came from Slovak Prime Minister, Robert Fico, who suggested there is a 50% chance of a euro area breakup. The news resulted in a sharp sell-off in risk assets as crude oil, gold, silver, and the euro all fell to session lows. Weak data points out of Japan and Germany also added to the bearish tone. Stocks were able to recover some of their losses before succumbing to late-day selling pressure which resulted in the S&P 500 closing lower by 0.8%.

The low end of the recent range is now being tested in a number of markets. The all important levels remain S&P500 1395, DAX 6900, EUROSTOXX 2400 and AUD 1.03. Obviously all eyes will be on Ben Bernanke’s speech at Jackson Hole and no doubt this will provide the catalyst as to whether we hold these levels or break through. Certainly it is very difficult to speculate as to what is going to happen tonight. Personally I feel that it is just too early for Bernanke to commit to a QE3. There are a whole host of events in the first 2 weeks of September and there is also the August non farms report next Friday. I would be surprised if there was a major commitment before these announcements. Note that with QE1 and QE2, the markets were considerably weaker and the data points very soft. This is just not the case currently with the S&P500 challenging the previous April highs and better economic data coming through. I think the most likely outcome is that he just repeats previous comments and maintains his strong rhetoric of support.

The important point to stress is let the price action be your guide. Certainly the market is showing technical warnings as I have continued to stress- Double top patterns, narrowing leadership, waning momentum and breadth, divergences between asset classes, and topping patterns in Asian markets,. Please see these posts: http://fpmarkets.blogspot.com.au/2012/08/double-tops.html AND http://fpmarkets.blogspot.com.au/2012/08/futures-and-fx-report-22082012.html.

However, until those levels break, the market remains in an uptrend and you have to be prepared either way with a plan. A breakdown through 1390 opens up a fast acceleration into 1350 and possibly as low as 1320. On the upside, 1420 remains strong resistance.

The speech is at 2am Saturday AEST

S&P500 Daily:

Double Top pattern is still in play. Price is clearly struggling at this level. 

Emini S&P500 60mins:

Price remains in this range but is testing the low end and support. Breaks of this would confirm the bigger picture Double top pattern. Short term traders should look to buy this level first and if there is no follow through, look to join the breakdown lower. 

Emini Nasdaq 15mins:

S&P500 Emini Key Levels:

Support Levels: 1400/1395, 1370

Resistance Levels: 1415/1420

Europe

Weak macroeconomic data knocked the air out of European stock markets Thursday, with miners, car makers and banks leading declines. As stated earlier, a comment which rattled the markets came from Slovak Prime Minister, Robert Fico, who suggested there is a 50% chance of a euro area breakup.

Germany's DAX 30 index closed 1.6% lower at 6,895.49. Car makers led declines. BMW lost 4.8%, Daimler gave up 5.5% and Volkswagen fell 4%.

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 zone with some significant reversal candles on the Daily charts. The short term timeframes are now testing and potentially breaking down through the low end of the range. The inability to hang onto recent gains after breaking out of a solid consolidation pattern is a sign of underlying weakness and implies a potential failed pattern. Please see a post I put up in regards to these failed patterns and their repercussions: http://fpmarkets.blogspot.com.au/2012/08/the-most-important-rule-in-chart.html. 

Elliott wave traders could also now point to a potential 5 down off the recent high. This implies a higher degree trend change

2400 remains the key level in the Eurostoxx. Breaks of this would confirm a potential deeper correction lower. This same zone is 6900 in the DAX.

ESTOXX Daily:

Price tried to break above this downward trendline but failed. 

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 which is being tested now. 

FX Majors

The Australian dollar fell to the weakest level in more than a month against its US peer after China’s Shanghai Composite Index slipped to its lowest level since February 2009. China is the nation’s largest trading partner. New Zealand’s dollar weakened versus 13 of its 16 most-traded counterparts as global stocks and commodities dropped. The Aussie fell 0.6 percent to $1.0289 yesterday in New York, touching $1.0277, the lowest since July 25. The euro also retreated against the dollar as investors used some fresh headlines out of the euro zone to adjust positioning before Friday's speech by Federal Reserve Chairman Ben Bernanke.

From a technical standpoint, the analysis and outlook I have provided here continues to play out. 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 may continue to focus on this downtrend with a first target into 1.02. 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 topping pattern. This has been triggered on the break of 1.04 with a target into 1.02.

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.

Commodities

Obviously tonight speech will have a big impact on Gold.

From a technical standpoint, I see strong support in the 1650 to 1660 zone. This pullback now offers an interesting support zone to buy into the short term uptrend with the risk being on breaks below 1630.

 Gold December 60mins:

A pullback into solid support and a low risk entry into the uptrend now.