Futures and FX Report 4/09/2012

US Markets

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

US markets were closed yesterday due to the Labor Day holiday.

From a technical standpoint, the low end of the recent ranges were tested and held on Friday. The Emini S&P500 hit a low of 1397 and has once again bounced strongly off this level yesterday. Thus this now becomes a marker going forth. Despite the deteriorating technical backdrop, the S&P500 remains in an uptrend and I believe the inability to breakdown in the short term implies a potential retest of the recent highs in coming days. The upside target for any bounce is up to 1420/1425. Only confirmed breaks now below 1397/1395 would confirm a possible pullback and deeper correction.

My main concern regarding the bullish scenario is the continued weakness in offshore markets and topping patterns forming in Asia and Europe. If these setups continue to play out, will US markets be able to ignore this?  

S&P500 Daily:

Double Top pattern is still in play but no real follow through to the downside. 

Emini S&P500 60mins:

Price tested the low end of the range at 1397 on 2 occasions and was met with strong buying. The short term pattern increasingly looks like a triangle and consolidation setup of some sort. Breakout traders need to see strong breaks above 1415 for a target into the previous highs at 1425.  

S&P500 15mins:

Should there be no follow through to the upside, be aware for a potential topping pattern on strong breaks of 1400. 

S&P500 Emini Key Levels:

Support Levels: 1400/1395,1370

Resistance Levels: 1415/1420

Europe

European stocks registered gains across the board and the U.K’s FTSE 100 increased 0.8%, France’s CAC 40 rose 1.2% while Germany’s DAX climbed 0.6%. Offshore markets took a positive lead from Asian trading, where an unexpected decline in Chinese manufacturing boosted speculation that the government will announce further stimulus. Yet more weak manufacturing data from the euro zone was shrugged off. Indices also got a late boost from ECB president Mario Draghi reportedly telling an EU parliament committee that the purchase of sovereign bonds of up to three years would not constitute state aid.

From a technical standpoint, I have shown significant resistance zones in both the DAX and Eurostoxx Daily charts of late. This has provided strong initial resistance but there needs to be more follow through to the downside to confirm a more meaningful turn. As I have continued to stress, 2400 remains the key level in the Eurostoxx. Only breaks of this would confirm a potential deeper correction lower. This same zone is 6900 in the DAX. 

The big event will be the upcoming ECB meeting on the 6^th September.

DAX Daily:

Price tried to break above this downward trendline but failed. 

DAX 60mins:

Potential triangle type pattern with a breakout to the upside in play in the short term. 

Eurostoxx 15mins:

FX Majors

Despite the move higher seen in overseas equity markets, the Australian dollar failed to follow through meaningfully to the upside. A high was made at $1.026 and price has retraced hitting a new low at 1.022 during the Asian session.

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 short term Head and Shoulders topping pattern. However, no doubt we are entering into a solid support zone and the first target for this move into the 1.02 zone. Thus, those traders with open short positions should be looking to tighten up risk into here. There is no signal yet of an imminent bounce but certainly the trend is beginning to look oversold in the short term. AUDJPY, a key risk asset, continues to grind lower after the “failed breakout pattern” and is now into the target zone. This has been a great trade and a clear example of the power of failed technical patterns: http://fpmarkets.blogspot.com.au/2012/08/the-most-important-rule-in-chart.html

AUDUSD Daily:

Failure out of the resistance zone and now approaching the first target as shown. 

AUDUSD 60mins:

The short term trend remains down but no doubt it is beginning to look oversold in the short term. 

AUDJPY 60mins:

Now coming into the 79.5 to 80.0 target zone. This should be meaningful support and potential bounce level.

EUR 15mins:
Breakout above the flag pattern shown here. Key short term support remains 1.255 and only breakdowns through this level would invalidate the trade setup. The target for this move is up to 1.2650/1.27

Commodities

Gold grinded higher overnight hitting a high of $1699 in the most actively traded December contract. The trend higher continues after the clear breakout above the Daily resistance zone. Only a break below 1650 would put the uptrend in jeopardy.

Gold Daily:

Breakout above the Daily resistance zone. 

Gold December 60mins:

A strong bounce out of the 1650/1660 support zone. This has now become a line in the sand going forth and traders should continue to follow this trend higher until we see a meaningful distribution process.