Futures and FX Report

US Markets

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

US Indices opened unchanged overnight before falling quite sharply into the red after the August ISM data missed expectations. The ISM Index showed US manufacturing shrank for a third month in a row and was reported at 49.6 versus consensus of 50. However, once again that trusty 1395 level held firm and stocks staged a slow climb higher erasing most of the losses. As such the S&P500 slipped 0.1% whilst the Nasdaq gained 0.3%. Interestingly, this US manufacturing slowdown comes on the back of PMI readings coming in below expectations in China, Germany, France, and Italy of late. 

From a technical standpoint, the low end of the recent range was tested and held once again overnight at 1395. This level continues to be a marker going forth. I thought that the inability to breakdown recently was indicative of a potential move higher but clearly price action is still lethargic. The technical backdrop continues to deteriorate, but only confirmed breaks now below 1395 would confirm a possible pullback and deeper correction.

In Asia, we continue to see real technical damage and confirmed topping patterns. Last week I highlighted the topping pattern in the Hang Seng and this continues to play out with heavy selling today. The ASX200 hit the top end of the range at 4400 recently and is now selling quite sharply. China continues to make new lows. AUD has sold off all the way into 1.02. How long can offshore markets ignore this for?

S&P500 Daily:

Double Top pattern is still in play but no real follow through to the downside. A close below 1395 would confirm this pattern

Emini S&P500 60mins:

Price tested the low end of the range at 1395 again overnight and held. This level continues to be met with strong buying but how long can this last for? The more obvious a level becomes and the more times it gets tested, the more prone it becomes to a breakdown. Breakout traders now need to see strong breaks above 1410 for a target into the previous highs at 1425.  

Hang Seng Daily:

An update from the chart I showed last week

S&P500 Emini Key Levels:

Support Levels: 1400/1395, 1370

Resistance Levels: 1415/1420

Europe

An unexpected drop in U.S. manufacturing activity drove European stock markets deeper into negative territory on Tuesday, with drug makers and resource firms feeling the most pressure. Markets opened on a weak note after Moody's cut the outlook on the European Union's credit rating to negative. Indeed, the credit-rating firm said it needed to adjust its outlook on the EU due to "the likelihood that the large Aaa-rated member states would likely not prioritize their commitment to backstop the EU debt obligations over servicing their own debt obligations."

In Germany, Deutsche Bank AG fell 2.3%, weighing on the DAX 30 index, which slid 1.2% to 6,932.58. France's CAC 40 index dropped 1.6% to 3,399.04, marking the worst daily performance in a month. Heavyweight oil group Total SA lost 1.6%. The U.K.'s FTSE 100 index posted the biggest drop in more than a month and lost 1.5% to 5,672.01. BP PLC slipped 1.6% and miner Rio Tinto PLC gave up 2.6%

The Key upcoming event will be the ECB meeting on the 6^th September. The market will be hoping for an interest rate cut of 25bps but more importantly firm measures to ensure permanent, low yields in Italy and Spain, and a solution so that these countries can reconstruct their economies. A lack of clarification or firm commitment would be a real warning sign to investors.

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. 

DAX Daily:

Price tried to break above this downward trendline but failed. 

DAX 60mins:

Potential triangle type pattern but price failed to breakout yesterday. 6900 remains key support and traders should look for breakdowns through here for potential shorts.

Eurostoxx 15mins:

Topping pattern should 2400 break to the downside. 

FX Majors

The Australian and New Zealand dollars fell to more than one-month lows versus the greenback due to soft economic data and declines in European stocks.  The Aussie fell 0.2 percent to $1.0225 in New York yesterday. The market is also now pricing in a 70% chance of an interest rate cut come the next RBA meeting and this has put pressure on the Australian Dollar.

From a technical standpoint, the analysis and outlook I have provided here continues to play out. AUD remains in a short term downtrend and 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. I am also seeing increasing signs of bearish sentiment after an almost 400pip fall from the high! 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 at the 80 level. 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.

What has me puzzled- if AUD is at great supports and is going to bounce, that implies equities will also hold in. If this 1395 S&P500 and 2400 ESTOXX breaks to the downside, I would envision AUD will also slice straight through this target zone with a move down to parity. 

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 but price failed to push meaningfully higher. A breakdown through 1.25 would be a major warning sign for bulls and would suggest a more meaningful high was made at 1.262.

Commodities

Gold futures briefly moved above $1,700 a troy ounce in intraday trading Tuesday for the first time in five months as traders and analysts said poor U.S. manufacturing data gives the Federal Reserve more reason to introduce fresh stimulus measures.

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.