FP Markets: Futures and FX Report

US Markets

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

US futures bounced strongly off the support zone cited here yesterday and the strength carried through into the cash open. Stocks were broadly higher throughout the day before late afternoon selling sent the Nasdaq into negative territory. The dip also pushed the other indices lower, but they were able to hold most of their gains. The Dow finished higher by 0.5% while the Nasdaq ended flat. Eight out of

As I stated yesterday,

“...price has clearly broken out above the Double Top zone and recent consolidation pattern with good momentum. The pullback into the previous breakout zone (1425) offers a low risk entry into this uptrend at support. When prices make new highs in a strong trend, the highest probability trade is to buy the first pullback looking for a retest of the previous highs at a minimum. We are looking for a continuation of the previous trend. Two outcomes typically follow:

i) The retest will either fail at the previous high in which case a small profit can be made.

ii) A whole new continuation leg begins and a strong trend ensues higher.

This played out to a small degree yesterday as the Emini S&P500 retested the previous 1437 highs. We now wait to see if price can breakout and continue higher to fulfill the second scenario above.Only a break back down below 1395 would put the uptrend in jeopardy. The Nasdaq underperformed which is a small concern.

The key event this week will be the FED policy statement on Thursday. Asian markets and currencies continue to act strongly in the short term and thus it looks like the market is pricing another QE event.

S&P500 Daily:

Breakout above consolidation and the Double Top zone. This next technical level is 1450. The trend remains up and Fridays candle was confirmation of a new kick off move higher.

Emini S&P500 60mins:

Yesterday price retested the support zone shown at the 1420s and bounced strongly right into the previous highs. The trend remains up and I believe the targets for this move are higher still. Look for breaks above 1437/1440 to confirm.

Emini Nasdaq 60mins:

Pullback into great support area and low risk buy area. However, the bounce has not been as strong as hoped and this is a small concern. I would want to see follow through to the upside right away otherwise this is a warning sign.

S&P500 Emini Key Levels:

Support Levels: 1425/1420, 1410

Resistance Levels: 1437/1440, 1450

Europe

European stocks climbed as Germany’s top constitutional court said it will proceed with a ruling on the country’s role in the euro-area bailout fund. Indeed, a bid by German lawmaker Peter Gauweiler to get the hearing delayed after the ECB pledged unlimited funds to buy government debt failed overnight.

In Germany the DAX 30 index jumped 1.3% to 7,310.11, as Deutsche Bank rallied 4.1%. New co-CEOs said in a joint statement that Deutsche Bank will accelerate deleveraging by creating a noncore operations unit. The French CAC 40 index also closed higher, up 0.9% to 3,537.30 with Banks such as BNP Paribas SA +2.2% and Credit Agricole +1.1% leading gains.

Tonight, Germany’s Federal Constitutional Court in Karlsruhe will decide whether to halt the country’s participation in the 500 billion-euro ($640 billion) European Stability Mechanism, the euro area’s permanent bailout fund. Also, parliamentary elections are due to be held in the Netherlands tonight, and euro-area finance ministers are meeting in Cyprus on September 14^th.

From a technical standpoint, I have shown significant resistance zones in both the DAX and Eurostoxx Daily charts. These were broken with genuine strength on Thursday last week. Yesterday I said “the DAX is testings its previous highs here but I believe it will be only a matter of time before it breaks above this level given the movements across asset classes.” This occurred last night and there was a solid close above the previous highs. We now have the S&P500, the DOW Industrials and the DAX all closing above their April 2012 highs and this is a sign of genuine strength.

Dax Daily:

Strong breakout above the previous highs. Only a close back below 7000 would put this uptrend in jeopardy

DAX 60mins:

The pullback was shallower than I had hoped and price reversed above my idealised levels. A trend that is hard to get into is a sign of genuine strength.

Eurostoxx 60mins:

Price made a low right into the upward sloping moving averages. The targets for this market remain up to 2600 in the short term.

FX Majors

The Australian and New Zealand dollars gained against all of their most-traded counterparts as risk appetite increased amid speculation the Federal Reserve will buy bonds to boost the U.S. economy. Furthermore, the two currencies strengthened against the greenback after Moody’s Investors Service said the U.S.’s Aaa rating may be cut if it doesn’t reduce its ratio of debt to gross domestic product. Australia’s currency appreciated 1 percent to $1.0434 yesterday in New York after earlier rising as much as 1.1 percent to $1.0449, its highest level since Aug. 23. It rose 0.3 percent to 81.15 yen.

Yesterday I wrote
“There may need to be some time for consolidation before a new push higher. Pullbacks into 1.031/1.0320 should be strongly defended now and offer a low risk entry into the trend with stops below 1.03.”

This played out to a tee overnight. A strong breakout above 1.044 will now open up a move into the bigger picture target up at 1.06. That downward sloping trendline on the Daily chart will be key and if we continue to see these strong price candles, I believe a breakout to the upside is likely indeed.

EUR has clearly broken out above 1.28 and we now have a confirmed trend change. I do think that AUD will be the strongest of the currency pairs in a “risk on” scenario but ultimately both will be dragged higher if we are on the cusp of a QE3 event and dollar devaluation. Interestingly, USDCAD has broken down through a big support level and this implies genuine USD weakness. Note that USDCAD peaked at March 2009 which coincided with the beginning of the major equity bull run. Given that this has broken down through such a strong support zone, this perhaps implies room for stocks and risk assets to continue their run higher.

AUDUSD Daily:

The key test will be at that downward sloping trendline. For now, price has bounced strongly right off the idealised buy zone and we now have 3 strong back to back bullish candles. Here is my post regarding the AUD buy zone that I put up last week: http://fpmarkets.blogspot.com.au/2012/09/audusd-and-employment-numbers.html

AUDUSD 60mins:

AUD has now broken out above my 1.044 target zone. This is a sign of strength and opens up a potential move into that Daily trendline up at 1.055.

EUR Daily:

Price broke out of this long term downtrend. It takes time for markets to transition from downtrend into new uptrend. Clearly we have now seen this process complete given the strong breakout above the 1.24 base pattern. The bigger picture target is up to 1.32.

USDCAD Daily:

Breakdown through major support zone with a target someway lower. This has a bullish read across for stocks and risk assets.Base pattern and breakout into the 1.28 projection area. This may provide some short term resistance.