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 indices started on a positive note on Friday with broad gains across stocks as positive sentiment continued post the announcement of QE3. However, the major averages marked their respective session highs during the first hour of trade and drifted lower for the remainder of the session. Afternoon selling pressure increased slightly after Egan Jones lowered the credit rating of the U.S. from ‘AA' to ‘AA-‘ (Briefing.com).

So early September has brought a number of major announcements and measures by Global central banks to inject liquidity into the system which has buoyed risk assets. There is one little problem remaining in the guise of Greece. However, on the whole these interventions and promises of “unlimited” support have clearly been well received by the market and removes much uncertainty. The simple fact that the S&P500, DOW and NASDAQ have all closed strongly above their respective 2012 May highs is a sign of underlying strength. Whether or not this resolves the debt situation in Europe or the unemployment situation in the US is another thing, but for now there is genuine momentum behind this move. This rally across risk assets could well continue into year end as investors chase performance. In this extended low rate environment, investors are being forced to commit capital to “riskier” assets and I can’t see what other option they have.

From a technical standpoint, Fridays trading looked to mark short term exhaustion with good resistance at 1475 to 1480. This couples with strong resistance zones in the Eurostoxx Index, EURO (1.315), Australian Dollar (1.06) and GOLD at these levels. Thus, there is potential for a short term pullback as the euphoria surrounding these announcements dissipates. Targets for any weakness are into 1450/1445.

It must be stressed that the US markets have surged beyond their previous 2012 highs and this is a sign of underlying strength. The trend is clearly up and there is genuine strength behind this move, thus traders should continue to look for dips into supports cited. It is important to note that the big picture target for this S&P500 move is now right into the 2007 highs as long as price can hold above 1405.

S&P500 Daily:

Potential daily reversal candle at the upward trendline. However, the breakout above 1420 is a sign of a new kick off trend higher thus traders should look for continued pullbacks into the trend as long as the level holds.

Emini S&P500 240mins:

Reversal and spillover at the top end of this channel

Emini S&P500 60mins:

This is the short term range I am looking at. Any retest of Fridays spike highs at 1475/1480 offers a potential low risk short scalping opportunity. Breakouts open up a move to 1500 in time. Support comes in at 1445/1450.

S&P500 Emini Key Levels:

Support Levels: 1140/1450, 1410

Resistance Levels: 1470/1475, 1500

Europe

European stocks closed at a 15-month high on Friday as the upward momentum continued post the launching of QE3.

Among movers in Europe, mining firms posted solid gains, tracking most metals prices higher. Kazakhmys surged 14%, Vedanta Resources jumped 13% and BHP Billiton added 6%. Oil firms were also on the rise, as oil prices temporarily topped $100 a barrel. BP rose 1.2% and BG Group advanced 3%.

On Fridays report I said

“No doubt these European markets are now appearing overextended but once again the trend remains firmly up and there is no topping pattern in place yet. A failure at yesterdays spike highs (EUROSTOXX) would be needed for more confirmation of a more meaningful bearish turn. My target is and remains 2600 for the Eurostoxx and we are now not far off that level.”

Price did retest Thursday spike highs but there was little selling. 2600 to 2625 remains short term resistance as per the charts below. The charts are indicating there is the potential for a short term high and deeper correction thus traders could be anticipating this. Short term breaks of 2580 open up a potential move into 2500.

Eurostoxx Daily:

This is the Daily resistance zone I am looking at

Eurostoxx 15mins:

Price is beginning to form a wedge type pattern with momentum waning. This is a potential warning sign of a potential pullback. There is strong resistance from 2600 to 2620 and traders could use this zone for low risk potential short trades.

DAX 15mins:

FX Majors

The Australian Dollar continued its recent strong rally on Friday night, retesting the previous August highs in the 1.06 region. However, the Aussie was unable to hold onto gains and grinded lower out of this resistance level to close at 1.055 come the close of New York Trading. This sell off has continued into Asian trading today with the Australian Dollar hitting a low of 1.0510.

From a technical standpoint, I put out a Blog post on Friday night going into some detail into the potential next moves for the Australian Dollar: http://fpmarkets.blogspot.com.au/2012/09/where-to-next-for-battler.html. In sum, there is the potential for a bigger picture breakout up to the previous 1.10 highs. No doubt this will take time to play out.

In the short term, the market is trading in a range from 1.05/1.0520 to the 1.06 resistance level. I believe traders should continue to look for pullbacks into the support zone cited to join this uptrend. 1.0420 has now become a line in the sand for the bulls. The EURO has continued to surge post the breakout above 1.24 and I am very hesitant to call any kind of top here until a clear distribution pattern. This is not in place currently. However, certainly there are meaningful levels being tested here at 1.315 as per the chart below.

AUDUSD Daily:

This is the bigger picture triangle pattern I am looking at. Price is now testing key resistance.

AUDUSD 60mins:

This is the short term range. Traders could either look to buy support at 1.05/1.0520 or wait for clear breakouts above the top end of the range i.e. 1.06. Only a close back below 1.0420 would be bearish now.

AUDJPY 60mins:

EUR Daily:

Strong resistance at the 1.315/1.32 zone. This comprises the 38.2 Fibonacci retracement off the previous daily highs, and a previous breakdown level.

Commodities

After a very strong run up in anticipation of and confirmation of QE3, Gold has now reached my short term target. This has been a great trade no doubt. As per the daily chart below, this is the zone I am looking at here. I believe price will need to consolidate in either price or time before the next meaningful move higher.

Gold Daily:

The 1780 to 1800 target zone has now been hit. No signs of a top yet.