Market Report 24th of February 2010

Market Comment
S&P futures closed lower on a wide spread down bar yesterday on increased volume, which confirms the “no demand” bar from Monday. We also note the volume was declining over the previous few sessions as the price traded higher and then it rose on the sell off yesterday. This signals stronger volume was to the downside and opens for more weakness near term. Key support at 1056 and key resistance is 1128 for now. The main factor that triggered the sell off was the terribly weak US Consumer Confidence index, falling 10.5 points from prior month’s reading. Expectations index fell even more, with a 13.5 points. Of course a reading below 50 is not good news, but another strange thing here is that the other economic data reports such as US payrolls and Michigan confidence reports does not match at all the weak number out from the Consumer Confidence index. This do looks pretty strange. Was this Consumer Confidence data a one month drop or will the other data reports follow in a weaker tone?
The German IFO came out lower than expected yesterday, which saw the risk appetite swing around after the release. An interesting comment to be added to the IFO reading is that exceptional cold weather probably had a negative effect on the reading and we expect the weakness to be more temporarily. So the reading should rebound next month according to that theory and we will monitor it closely.
Mr. Bernanke will testify in front of the House today (16:00 CET) and we expect him to signal the rates will stay low for a extended amount of time and that they hike in the discount rate was normalization move, which should have very limited effect on the economy. Fed’s Bullard out last night saying the Fed may not raise rates during 2010. This supports our view that interest rates will stay low for an extended period of time
In currencies the JPY has been performing strongly over the last 24 hours and it now looks like the USDJPY failed up at the falling resistance (92.05) from the April 08 high Friday. We expect the risk on and risk off themes to continue to drive the markets going forward, but seems like the moves in FX markets are a bit bigger than the moves seen in S&P. Especially to the downside as the JPY have seen big gains over the last 24 hours based on actually fairly minor swings in the S&P. We still look for weaker JPY in the medium term as the weak Japanese fundamentals should limited the attractiveness of investing in Japan. AUD taking a beating as well on reduced risk appetite yesterday and basically most economists now expect RBA to hold rates steady in March and a rate hike should see AUD fly higher.
Potential false break above 1130 in Gold Monday was followed up with a drive lower yesterday. That points to a test of the 1094 support level near term. Technically still bullish potential above this 1094 level in our opinion. Crude fell a bit yesterday after the strong rally over the last week, we see key resistance up at 84.35, which is the upper end of the recent 6 month range. Contango is wider again this morning. Of course there still lots of carry trades in Crude that are stored in tankers that will have to come back to market at some point, so not so sure a break higher will have any strong legs. DOE inventory report out today and we note that the API data (Crude fell 3,1 million barrels) out last night was slightly bullish in our opinion. We also note that the volume has dried up over the last few sessions, which is bad news for the bulls as a breakout above a key resistance level is very difficult if the approach towards the level happens on declining volume. We should see increasing volume instead. As we have mentioned many times of the previous weeks, it remains in the wider range since 6 months and it doesn’t appear to be any real driver near term to take out this range with support at 67.87 and resistance at 84.33.
EURJPY vs. S&P 500 futures, see how the correlation has been totally off the last few months, but returned last week or so. Looking at the EURJPY vs. S&P 500 chart is looks like every time there has been a longer time of very low correlation it has been followed by a longer directional move


Global Market Review
Global market risk imploded after the U.S. Weekly Jobless numbers printed at 496K, and sent the 4 and 10 week averages higher, which is against the recent outlook that economic expansion is underway. That will create a conundrum when valuing Usd long-term positions, as the dollar gets bought in the move out of equities and into Treasuries.
Global commodities are lower, and by default are also empowering the long side of the greenback; however the 4 Hour chart trend and momentum reads are still very mixed. The calendar is ridiculously busy with Mr. Bernanke Testimony, Mr Geithner meeting, and President Obama health-care reform meetings. All of this comes in the face of weaker-than-expected economic reports from the U.S. and Euro-zone.
Usd/Cad just hit Resistance 3 areas at 1.0670, and may now reverse tack if Wall Street cash trade can temper the selling and oil holds 77.50. Gbp/Usd looks weak, although now oversold. Usd/Jpy is now hitting areas around 89.00 that generated a heavy long reversal
The red flag is seen in Usd/Chf; it is just not moving in-line with the major pairs, and that tells us that the Usd may be tapped out in the near-term if equity markets hold support
The calendar was busy on Thursday ahead of Fed Chairman Mr Bernanke delivering a testimony to Congress at 9am EST that will allows market participants the chance to weigh the next FOMC move
Any hints that an interest rate hike will come earlier than expected will allow the Usd to find buyers. Any downbeat talk about the economy could strengthen major pairs.
Global market 4 Hour trends have very mixed reads, and are very oversold in the near-term. Risk aversion is allowing Usd buying to consolidate the Asian session panic reaction to rating agency threats from S/P and Moodys to downgrade Greek sovereign debt again.
Looking for S/P to hold 1085 and minimize Usd buying, (or not, as the case may be).
12-month Forex correlations: Eur 90% Oil. Gbp -89% VIX. Aud 96% Oil and S/P. Cad 95% Oil and S/P. Chf 93% Oil and S/P. Jpy -69% Gold.