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The ISM came out better than expected Friday and the prices paid component came in lower than expected. A perfect mix for more “risk on”. This was confirmed by the break above 1317 in the S&P 500 futures and I would not be surprised to see an extension in “risk on” throughout the next few sessions as we are heading towards the release of the US non-farm payrolls (NFP) on Friday, which is big joker card. I think we need to see an improvement in the NFP report from last month’s weak 54k and preferably an upward revision to last month’s number to have a shot at breaking the yearly high in the S&P 500 futures at 1361.75. The expectations on the NFP range from +50k to 160k.
The next 12bn Euro tranche of aid to Greece was approved over the Weekend by the Eurogroup.
http://www.telegraph.co.uk/finance/financialcrisis/8612594/Greeces-latest-aid-injection-approved-by-eurozone-finance-ministers.html
This of course helps the risk sentiment as well. However I am not sure we have seen the last of the Greek story this week as comments out of S&P this morning says they would consider the voluntary swap of Greek bonds to longer maturities as proposed by France would indeed be looked upon as a default. This would basically mean that ECB cannot long accept Greek government paper as collateral and this would mean we have a Greek bank crisis on our hands. So, I will keep watching the news and stay flexible going forward as things can change for the worse instantly.
The latest risk rally has seen Swiss Franc getting crushed across the board and EURCHF is above 1.23 this morning. The weak Swiss PMI on Friday of course helped a lot too. Looks to me like SNB will lag behind ECB to raise rates and therefore the CHF should weaken further. I called this rally last week and said it would trade to at least 1.22 when it was at 1.19. I favor more upside medium term as the CHF looks very expensive in my opinion. Near term a dip lower ahead of 1.2350 looks likely.
Crude did indeed trade lower start of Friday as I expected after the failure to take out the 96 resistance for 2 consecutive days (Wednesday and Thursday). We got to a low of 93.45 before the ISM release put a solid bid that took us back up to close at 94.92. The key falling resistance is coming in at 95.25 today and would like to see a daily close above this trend line to look for a leg higher. Key resistance remains 96. A move below 92.90 support would open for a deeper move lower.
I am still looking to add some type of position in Corn following the huge sell off week, but I have not made up my mind what the position will be yet. I will come back on that during the next few sessions.
I expect today’s sessions to be very range bound as the US markets are closed in observance of Independence Day and no major economic news scheduled this afternoon. We have the RBA rate announcement at 06:30 tomorrow morning, no change is the market expectation.
Looking at a few interesting points in the markets trading wise:
- 76,4% Fibonacci retracement of the 1361.75 – 1252.25 move comes in at 1336, which was right around the Friday’s high (1336.50). The high from 31st of May at 1340.25 is the next key target. Break out level of 1317 is now key support.
- We have Independence Day in the US on Monday, meaning the US market is closed.
- We still have key resistance at 96 in Crude and could be interesting to place some buy stops just above that level to look for a stop drive higher if that level gets broken.
- Silver is approaching the lower end of the last month’s range, range 32.75 to 38.76.
- Gold is bearish below the falling resistance at 1502 today.
- Euro’s break above 1.4500 opens for a test of key resistance at 1.46, expect dips to be supported towards 1.4450 to be supported the next few sessions.
Interesting headlines:
EU Rescue Effort May Prompt Greek Default Rating - Bloomberg
http://www.bloomberg.com/news/2011-07-04/greek-rescue-effort-by-europe-may-earn-the-country-default-rating-from-s-p.html
S&P deals blow to Greek bail-out plan - FT
http://www.ft.com/intl/cms/s/0/e69610e4-a60a-11e0-8eef-00144feabdc0.html#axzz1R95wOA4I
Economic Outlook: Focus returns to US jobs – FT
http://www.ft.com/intl/cms/s/0/8bc8de8a-a3e9-11e0-9f5c-00144feabdc0.html#axzz1R95wOA4I
A Brady plan to end Europe’s crisis – FT
http://www.ft.com/intl/cms/s/0/dd0ad29c-a5a3-11e0-83b2-00144feabdc0.html#axzz1R95wOA4I
Technical’s and comments
Euro: The break above 1.45 Friday opens for an extension higher as I think we will see the risk on theme continue going into the NFP report Friday. The resistance levels today are the low from 7th of June at 1.4564 and the high from the same day at 1.4695. We have risings support at 1.45 followed by 2 days’ low at 1.4436.
Cable: Looks like a better choice to short GBP than Euro at the moment as we have broken above the key resistance level at 0.90 in EURGBP. First upside level to get short I figures is around the 1.61 level and stop above 1.6150 or so.
USDJPY: Very tight range over the last sessions. I remain longer term bearish on the JPY as the fundamental factors in Japan looks ugly, with huge public debt and unfavorable demographics going forward. However the risk off over the last days has taken us below 80 again. Not sure if we see any intervention unless the move picks up in speed and magnitude. Buy on dips for the brave.
Swissy: Strong move higher in the EURCHF as we are once again above the 1.2300 level. Medium term I expect the CHF to underperform vs. Euro as SNB will be lagging ECB on the rate hiking front. Have resistance at 0.85 at the moment, which is the pivot level in this pair for now I think. Bearish below this level and bullish above.
AUDUSD: We have strong resistance around the 1.0750 level, so would not chase the price action above that level.
USDCAD: Rapid move lower and I think it makes sense to wait for a rally back up towards 0.9730 or to get short again.
S&P Future (ES): Ended yesterday higher as I expected, although a bit higher then I had anticipated. Have key falling resistance from the yearly highs coming in at 1317. Expect a move lower to 1292 support over the next 3 sessions.
Gold: Broken to the downside technically and next downside target is 1464. I would not go short at current levels as we have seen plenty of bounces in this region. If long I would prefer to use options or possibly long futures and sell some calls against the long futures to give a bit more flexibility.
Crude oil: Failed at 96 resistance on 2nd consecutive days last week. We have interim falling resistance at 95.25 today and would like to see a daily close above this level to get me excited about a possible rally. Key support is 92.90.
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