Markets Flat As Investors Digest IMF Meeting Notes | September 26, 2011.
The Australian equity market is set for a small drop on the open today after the US equities edged slightly higher Friday evening. Investors were looking to the weekend IMF meeting for some concrete details on how the Greece debt crisis is going to be contained, the outcome was some band aid fixes along with some promises that they will act decisively to tackle the dangers confronting the global economy.
The S&P500 index rose 6.87 points to close the week at 1136.43 while the Dow closed up 37.65 points at 10771.48.
The EURUSD (see above chart) is trading up from Friday close after German Chancellor Angela Merkel said the euro zone leaders needed to erect a firewall around Greece to prevent market attacks on other European states.
The NZDUSD has traded off lows of 0.7723 early Monday morning after a government report showed that the August trade deficit was wider than analysts had estimated.
WTI crude traded down from highs of 81.61 in the US session to as low 77.57 ending the week down over 9 per cent, this is the biggest weekly decline since May.
Gold futures traded down over 6.0 per cent from highs of 1750 per ounce to as low as 1628.75 as investors opted out of the precious metal for cash. Silver has been the hardest hit commodity continued south from highs of 36.25 to open today at 30.15 and trading as low as 29.28. Over the weekend the CME raised the margin for both the futures contract due to the increasing volatility in the markets.
SPI 200 future 3921
S&P500 Index 1136.45
Dow Jones 10771.50
FTSE 100 Index 5066.81
Oil (Nymex) 79.85
Bloomberg, Dow Jones News
The Financial markets are backed to to the extreme hysteria that they had just two months ago. The past week was the worst in Wall Street since 2008 and it looks like that the economic situation of many countries is even worse than it was on the subprime crisis. The world has accepted the fact the bankrupt of Greece is inevitable and analysts are trying to estimate how the "day-after" will be.
The S&P 500 was closed on Friday near the support of the round number 1100 points, but it looks like that nothing can prevent it from breaking this support down. When it breaks, many automatic orders will be triggered and it might fall sharply to the next support at 1000 points, which is a number with a psychological meaning to the markets.
Investors will wait for Bernanke's speech on Wednesday, but before they will try to find some hope on the new home sales data and durable goods orders. US GDP will be published on Thursday.
Most of the currencies broke significant supporting and resisting areas against the USD, which is in a very strong momentum. Therefore, you need to analyze the charts on the long perspective, in order to estimate the current movement's destination. During the recent weeks, we analyzed the weekly and monthly charts of the GBP/USD, EUR/USD & CAD/USD and now we will analyze the other important pairs.
You can see on the monthly chart that the Aussie started an obvious bullish trend back on 2008. The reason for this amazing rally is the interests arbitrage between the high level of the Australian and the zero level of the developed countries.
Technically, it seems that a significant correction would have come either way, even if the current crisis did not occur. The Aussie is now traded above the support of the uptrend line, around 0.97-0.98. However, an important negative sign occurred when the currency broke the support at 1.0. In addition, a double-top pattern appears in the monthly chart, around the yearly highs. If the AUD continues down, it might slide to the 200 SMA at 0.90.
The strength of the Yen is well shown as it manages to keep the low levels against the USD, in spite the strong momentum of it. The impact of these two forces causes the USD/JPY to move in a very narrow channel, which the pair cannot break-through. Things are different when it comes to the weak Euro, which is diving against the JPY. The monthly chart shows a bearish trend that also started on 2008 and a few sharp corrections appeared along the way. The important support of the 105 was recently broken and the next one is around 100 Yens per EUR. Nevertheless, the euro might correct to the resistance of the monthly trend live around 110.
In a bit longer perspective, this pair has good chances for retesting the historical low from year 2000 at 89-90.
Both EUR&GBP are very weak currencies these days. The pound is crashing against the USD without any brakes, and so is the Euro. Therefore, when you try to analyze this kind of a pair, the main question is which currency is relatively stronger (or weaker). As a result, technical patterns on the daily chart, which might indicate of a certain direction, can mislead the technical trader, because the direction here can change anytime. Right now it looks like the Euro is relatively stronger and it is supported by the 200 SMA on the daily chart. A break-down of the lows around 0.865 can bring the momentum back to the GBP, but if the euro wants to rise, it will have break-through 0.88 and 0.89.
The European leaders agreed on recapitalizing the banks, which will have to raise capital to 9%. The stock markets in Both US and Europe closed in a bullish momentum. Today's main events are the US GDP and the overnight call rate in Japan.
Wall Street was extremely volatile yesterday and that affected the USD's pairs. The CHF reached the target we set at the 200 SMA (0.872) and got the expected support there. Investors are still afraid of buying the Swiss Franc aggressively, due to the risk of another intervention by the Swiss central bank. A bearish signal came last Friday as the pair crossed under the 20 EMA and created a new low. If the Swiss continues down, it might get to the support at 0.855. This support is a former resisting area, and therefore many buying orders will wait there and probably support the USD. Likewise, pay attention to the low levels of the stochastic oscillator that indicates for overselling and increase the chances for correction around the current levels.
The EUR is getting closer to the strong support it has against the USD at 1.40. The approval of the bailout plan should push the European currency above this resistance, towards the 200 SMA at 1.41. The CHF is getting stronger against the USD these days and that is why the EUR/CHF daily chart does not indicate for a certain direction.
The pair has been traded around 1.215 for several weeks, as it breaks it up and down alternately. The 200 SMA was a strong support in the last couple of weeks and but the pair crossed under this indicator, and that is a bearish signal. However, the potential intervention is obviously valid here as well, and therefore we probably will not see aggressive declines on the short terms. The Swiss central bank declared the level of 1.2 as an "unbreakable" and that is something that you should keep in mind.
The official cash rate in New Zealand remained unchanged yesterday (2.5%). This level is higher than most of the western country's interest rates, and therefore the NZD is still attractive for many institutional.
The pair made a false break on Monday, after breaking the "Cup & Handle" pattern it had under the resistance of 0.807. The pair rose just 35 pips and fell down to the support of the 20 EMA at 0.79. This might be just a shake-out of inexperienced traders who got into the trap of the institutional. If the NZD crosses above 0.805 again, the break-up might turn out to be successful. However, a break-down of the uptrend line around 0.79 might reduce the chances for an additional bullish session.