On Monday, the greenback strengthened against the Euro and the British Pound, as the U.S. stock market went bearish. All the main stock markets around the world were influenced by this negative U.S. development. In this sense, the main U.S. indexes suffered losses as fear about delayed economic improvement was felt by analysts around the world. The U.S. Dow Jones went down 186 points while the U.S. S&P 500 fell 24.36 points and the NASDAQ retreated 54.68 points. Yesterday, the Empire State Manufacturing Index was published with a reading of 12.1 well above the estimation of 3.1. A reading above 50 on the Empire State Manufacturing Index indicates an expansion. Also remember that the TIC Long-Term Purchases showed a number of 90.7 billion, when analysts awaited a number of 17. 7 billion. These readings were not enough to change the bearish trend in the market. The NAHB Housing Market Index which determines the demand outlook of single-family home builders was published yesterday showing a number of 18 as estimated by analysts. Today the parade of Housing Market data will continue.
As for today, we are waiting the Building Permits numbers, which determines the level of new residential building permits issued, and is estimated to come in at 0.58 billion. Also during today�s trading session, the Producer Price Index (PPI) will be published and is estimated at minus -0.2%. The PPI determines the rate of inflation experienced by manufacturers when purchasing goods and services. Also the Core PPI which is a derivative of the Producer Price Index that omits the Food and Energy items will be published today, with less impact on the market. Finally, today the Housing Starts will be published, which determine the annualized level of new residential buildings that began construction during the last month, and is forecasted at 0.6 million. These readings of the Housing Market are key numbers today, and we should remember that one of the main factors that brought the onset of the U.S. crisis were the developments of this single and unique sector. Yesterday the Federal Reserve expressed its will to extend the TALF program mid 2010 - a move intended to improve credit in the real estate sector. The U.S Treasury department together with the Fed announced the extension of the program until the 30th of June and to the 31th of March regarding toxic assets. Nevertheless, it is important to note that the U.S. dollar may go bearish long term, because a few economical hopes we are watching on the horizon such as Japan, Germany and France starting to show signs of recovery. If U.S. economical data and that of other countries continue to spread confidence and optimism, then risk appetite will support currencies like the Euro and the Sterling, and investors will flee safe heaven currencies like the U.S. dollar and the Japanese Yen. Meanwhile, if Wall Street continues to fall, the U.S. dollar will present opportunities for investors.
EUR:
The Euro started the week bearish against the U.S. dollar mainly because of yesterday�s results that we saw in the world stock markets. In the Euro Zone yesterday, the Trade Balance figures were published, which initially showed a trade deficit during the first six months of this year and was reduced significantly because the improvement in the energy sector numbers. During Monday�s trading session, the European Trade Balance numbers were published, which determine the difference in worth between imported and exported goods and services, showing a number of 1.0 billion, below the estimated 1.4 billion reading. Investors should note that these are interim numbers for the month of June. However, the Eurostat announced yesterday the details of the Trade Balance for May highlighting the big reduction of trade deficit in the energy sector. As for today, we are waiting the German ZEW Economic Sentiment numbers, which determine institutional investor sentiment and is forecasted at 45.2. Also, the European ZEW Economic Sentiment will be published today with an estimated reading of 44.6. Tomorrow, the Producer Price Index (PPI) will be published in Germany, which determines the rate of inflation experienced by manufacturers when purchasing goods and services. The European Current Account will be published today, which determines the quarterly difference in worth between imported and exported goods, services, income flows, and unilateral transfers. German indexes are a key for predicting the Euro evolution, because Germany carries a big economical weight in the Euro Zone. The main bourses went down yesterday, specially we saw high losses in the financial sector, and for today it is estimated that investors will continue to trade with caution, until risk appetite will be back on the road.
GBP:
During Monday�s trading session, the Sterling loss ground to the U.S. dollar, as the main stock markets around the world went bearish. The GBP/USD pair went down to mark a three week low. It is important to note that the British Pound will continue to lose ground against the U.S. dollar, and some analysts estimate that the Cable will mark a quote registered in the middle of July. Yesterday there was no economic news from the UK, however, today the Consumer Price Index (CPI) will be published, which determines the rate of inflation experienced by consumers when purchasing goods and services, and is forecasted at 1.5%. Also we are going to see the Core CPI numbers, which is a derivative of the consumer Price Index (CPI) that omits the volatile Food, Energy, Alcohol and Tobacco items. For this indicator we are awaiting the 1.5% range. Both CPI indicators are estimated to give readings below the last ones. The Retail Price Index (RPI) will be published during today�s trading session, which differs from CPI in that it only determines goods and services bought for the purpose of consumption by the vast of households and is estimated at -1.7%. Once again deflation will be the big issue, and we should understand that if deflation joins our actual economical situation, the rate of economic recovery in Britain will be delayed significantly. Tomorrow, the Act Meeting Minutes of the Bank of England will be published, but no surprise is expected. The Sterling trade will depend on the level of risk aversion and on the U.S. dollar session.
JPY:
The Japanese Yen finished its last trading session with some profits against the U.S. dollar, as Wall Street experienced some losses that affected the main stock markets worldwide. These events took investors by surprise and a lot of sought refuge in safe haven currencies. We also should note that the Japanese economy advanced for first time in the last five quarters for the period of April through June. In this sense, the preliminary numbers of the Japanese GDP showed a positive number of 0.9% and an annual number of 3.7% according official records. This data confirmed that the stimulus packages implemented by the Japanese government and other countries, finally started to show results thereby boosting international demand. Japan is the third industrialized country showing signs of recovering from a recession, after Germany and France. The value of Crude Oil dropped 1.12% in comparison to the last trading session where a barrel of Crude Oil cost 66.75 USD. We can say that once again Crude Oil followed Wall Street�s trend. Regarding risky events, tomorrow the All Industries Activity numbers will be published. For investors it will be crucial to follow the stock market evolution because if we go bearish, the Japanese Yen will continue to be the favorite safe haven currency.
Equities Drop 20 Points, Today Should See Some Retracement, Followed By More Weakness
Today we will be trying something new. We will use a 4 hour chart instead of the daily chart. This will allow for closer trading levels, within a trading day. When we use the daily chart to establish trades, the time frame of the trade is more than one day. Thus, the ranges that we use for support and resistance are much wider. Many people feel that they are not able to get good trade entry using this method and must place stops beyond their normal risk levels. It is vital to remember that as traders one must be flexible. The point I am trying to convey is that any good trader knows to adjust their trading strategy to the market, and time frame they are trading. Meaning that if you are putting on a longer term trade (based off of a daily, or weekly chart) you need to adjust your position size in order to accommodate for the larger range that you inherently must trade. Risk management is the key. If you are increasing your risk, trade a smaller position, to be able to absorb the extra risk you are taking on. Otherwise, a loss will hurt and will not be as easily absorbed by you.
XAU/USD:
The trend is down. That is the key. While the last few hours have shown us strength, we can easily retrace 50% and continue downwards. At the moment we are near resistance. Keep an eye on this market and look for a good entry on the down side. Resistance 940.18 followed 948.60, support 930.54, and 925.91. If we do not show strength as the next candle forms I would look for getting in on the short side.
SPX/USD:
Support 968.65, Resistance 984.42, 992.67: This product is heavy. It is weighted down, Yesterday�s breakdown shows us how much discomfort and disbelief there was in the market while the SP was trading above 1000. Be cautious of any up moves, as any strength could be considered short covering. However, I am not suggesting that this will turn the market. In fact it will just allow more people to get short once the market retraces some. Further breaks of support could be followed by some furious selling.
GBP/USD:
We continue to trade the range as expected. True support is at 1.6212, but according out our 4 hour chart 1.6276 and a very small (and a level I don�t really trust) support at 1.6392. Resistance 1.6523 and 1.6657. Support and resistance are chosen by finding a band of price consolidation, where the market bounced between a high and low. When large moves down or up occur, we cannot always find good levels, as there is not enough back and forth market action within that range of time to allow us to create a range. At the moment I am looking for a good entry on the sell side. Anything around 1.65, while watching for any true market strength.
CLC/USD:
Yesterday�s candle on the DAILY chart could be considered a bullish reversal candle. A nice buying tail and a higher close. I am looking for a push up towards resistance of 68.855, and from there a further continuation of the down move. Once we show signs of getting past support of 65.245, look for the next level to be 62.705.