Daily Report: Concern on European Sovereign Crisis Sends Gold to Record High, Dollar Firm

Concerns over European sovereign crisis continue to wait on market sentiments and support dollar and yen. Funds continue to flow into safe haven assets, pushing gold to new record high against dollar and euro. Dollar index's break of 75.38 resistance suggests more upside in the greenback in near term. Asian equities are broadly lower with Japanese Nikkei closed at the lowest level since April 2009. Meanwhile, German bund yields extends recent decline and reached new all time low of 1.799%.

There were intensified worry as ECB and the IMF were in disagreement regarding the capital requirements of European banks. In a draft of the Global Financial Stability Report, the IMF unveiled that the funding needs for European banks would be as much as 200B euro. ECB President Trichet said 'there is a very important disagreement on the methods for calculating the capital needs' and he is 'convinced that the final IMF figure will not be that[probably much lower]'. At the same time, Trichet urged debt-ridden countries such as Greece and Italy to strictly implement austerity measures as planned.

As expected the RBA left the cash rate unchanged at 4.75% in September. The initial market reaction was a rebound in the Aussie as the post-meeting statement turned out to be less dovish than previously anticipated. The central bank attributed the pause to the growing uncertainty in global economic outlook. Recent developments have damped confidence and tamed inflation. Against some of the market participants' forecasts, the RBA did not hint any signs on rate cut.

On the data front, UK BRC retail sales monitor dropped -0.6% yoy in August. Australian current account deficit narrowed to AUD -7.4b in Q2 but was wider than expected. Australian home loans rose 1.0% in July CPI dropped -0.3% mom rose 0.2% yoy in August. Looking ahead Eurozone CPI revision, German factory orders will be released. Main focus should be on US ISM non-manufacturing index while is expected to drop 51.3.

XAU/EUR's uptrend resumes this week by taking out 1331.41 resistance and reaches as high as 1366.56 so far. There is no sign of topping yet and further rise is still expected. Break of 261.8% projection of 954 to 1088 from 1021 at 1372 should send XAU/EUR through 1400 psychological level. 

Dollar index's break of 75.38 minor resistance suggests that stronger rebound is under way for 76.71 resistance. It also raises the chance that whole down trend from 88.70 has completed at 72.69 already. Nevertheless, we'd still prefer to see sustained break of 76.71 to confirm. Otherwise,we'll stay neutral. 

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.4045; (P) 1.4109 (R1) 1.4158; 

EUR/USD's fall from 1.4548 extends further to as low as 1.4038 and breaks mentioned 1.4054 support. Intraday bias remains on the downside and further decline should now be seen towards 1.3837 support next. On the upside, above 1.4175 minor resistance will turn bias neutral and bring recovery first. But after all, as long as 1.4548 resistance holds, consolidations from 1.4939 is still in progress and more choppy sideway trading would be seen in near term.

In the bigger picture, EUR/USD is still trading above medium term trend line support from 1.1875 (now at 1.3941) and thus, rise from there should still be in progress. Break of 1.4939 should confirm rally resumption and should send EUR/USD through 1.5143 resistance towards 1.6039 high. However, considering that weekly MACD has been staying below signal line for some time now, a break below 1.3837 will have the trend line support, as well as 55 weeks EMA firmly taken out. That would argue that the rally from 1.1875 has indeed finished and will bring deeper fall towards 1.2873 support and possibly below.

Weekly Review and Outlook: Sentiments to Deteriorate Further in a Week of Central Bank Meetings

While the market sentiments have stabilized in the last few weeks, the theme didn't change. Occupying investors' mind are the fear of global recession as well and the never-ending European debt crisis. There is increasing chance that Fed will announce some sort of QE3 problem later in the month. But markets are also getting increasingly inconvinced by effectiveness of further easing from Fed on saving economic recovery. DOW and S&P 500 spent most of the week recovering, but the hard work was undone after a poor job report from US and both indices indeed closed the week mildly lower. Safe haven assets regained much ground last week with US 10 year yields closed below 2% at 1.99%, just 4 points above the record low. German 10 yield bund yields also dropped to a record low of 1.996 before closing at 2.01%. Gold surged 3.15% on Friday at 1876.9 and is heading back to 1900. In the currency markets, Swiss Franc rebounded strongly last week after SNB refrained from announcing new measures to curb the currency's gains while dollar index staged a strong rebound. Sentiments are vulnerable to further deterioration this week and next before FOMC meets on September 20.

Economic data were generally poor. US August non-farm payroll showed 0k job growth, against expectation of 90k. 17k of private sector job growth was offset by -17k government cuts. Gains for July was revised down from 117k to 85k while that for June was also revised down from 46k to 20k. Unemployment rate was unchanged at 9.1%. US consumer confidence plunged to 44.5 in August. ISM manufacturing avoided dipping into contraction region below 50 but did dropped slightly to 50.6 in August. Eurozone PMI manufacturing was revised down to 49 in August, while UK manufacturing PMI dropped to 49, both suggesting deeper contraction. China manufacturing PMI recovered slightly to 50.9 in August but missed expectation of 51.

The minutes of the August FOMC meeting unveiled that 'a few members' preferred 'a more substantial move at this meeting'. The range of tools that policymakers discussed to stimulate the economy included reinforcing forward guidance about the likely path of monetary policy, additional asset purchases, increasing the average maturity of securities holdings, reducing the interest rate paid on excess reserve balances. Policymakers did not show preference on the stimulating tools but they 'agreed that the September meeting should be extended to two days' as more time is needed for discussion. 

Greece came back to spotlight again on worry that the country would miss its7.4% budget deficit target, which is a key condition in funding of the original EUR 100b bailout package and that was admitted by Finance minister Evangelos Venizelos. IMF has confirmed that the "mission has temporarily left Athens to allow the authorities to complete technical work related to the 2012 budget and growth-enhancing structural reforms". Greece is given ten days to come up with proposals to put the austerity plan back on track and the talk between Greece and IMF will resume on September 15. Greek two-year yields soared above 47 percent.

On the other hand, there were increasing concern over Italy's waffling on its austerity proposal. The latest revision involves a increased crackdown on tax evasions which triggered criticism from many parties. Also there were concerns that the new proposal will create EUR 7b hole in the EUR 45b austerity plan agreed on August 5. ECB stepped up pressure on Italy as Trichet warned on Saturday that "it is essential that the target which was announced to diminish the deficit will be fully confirmed and implemented. And it's "absolutely decisive to consolidate and reinforce the quality and the credibility of the Italian strategy and of its creditworthiness".

Swiss Franc was notably stronger last week. Prior to Wednesday, where SNB usually announce new measures, markets have been anticipate some sort of announcements, like deposit taxes, to further curb Franc strength. However, nothing happened. And there are speculations that SNB is so far comfortable with EUR/CHF now well above parity and would refrain from more intervention in near term. We'd anticipate some more Franc strength in near termon risk aversion but will be cautious on reversal as it's believed that SNB is strongly determined to defend parity in EUR/CHF.

Technical Highlights

DOW's rebound from 10604 did extended further to as high as 11716 last week but faced strong resistance from 55 days EMA and 11862 prior support and reversed. It's likely that such corrective recovery is finished with three waves up already and the index is now vulnerable for more downside ahead. We'll be cautiously bearish for 10604 in near term, possibly later this month. Break there will resume the correct down trend from 12876 towards 9614 cluster support (50% retracement of 6470 to 12876 at 9672. In any case, we'll stay bearish as long as 11862 resistance holds. 

XAU/EUR staged a strong rebound last week and pull back from 1331.41 has apparently finished at 1180.07 already. XAU/EUR is holding well above the rising 55 days EMA and the up trend is still intact. We're cautiously bullish this week as long as 1280 minor support holds. Break of 1331.41 will confirm up trend resumption for 261.8% projection of 954 to 1088 from 1021 at 1372 next. 

Dollar index rebounded strongly last week but it's, after all, still staying in range of 73.42/75.38. Outlook remains rather mixed for the moment and we'll stay neutral before a break out. On the downside, below 73.42 will suggest that down trend from 88.70 is still in progress and resuming for 72.69 and below. On the upside, above 75.38 will turn bias to the upside for 76.71. Break there will in turn indicate that 72.69 is already the medium term bottom and the trend has reversed. 

The Week Ahead

Five central banks will meet this week, RBA, BoC, BoJ, BoE, ECB. ECB will be of particular interest as Trichet hinted on possible downward revision in its growth and inflation forecasts. We argued that ECB Remains on Hold Through 2012 and will look for some comments from Trichet to affirm this view. Also, BoJ is expected to remain accommodative after FM Noda became the new PM. RBA is expected to be stand pat at 4.75% through 2011. There are speculations on rate cut but so far they're not supported by economic data yet.

• Monday: Eurozone services PMI, Sentix Investor Confidence, retail sales; UK services PMI
• Tuesday: RBA rate decision; Swiss CPI; Eurozone GDP revision; US ISM non-manufacturing
• Wednesday: Australia GDP; BoJ rate decision; UK industrial and manufacturing production; BoC rate decision, Ivey PMI; Fed's Beige Book
• Thursday: Australia employment; Swiss unemployment; BoE rate decision; ECB rate decision; Canada building permits, trade balance; US trade balance, jobless claims.
• Friday: Japan GDP; China CPI; UK PPI, trade balance; Canada employment, housing starts.

USD/CAD Weekly Outlook

USD/CAD's consolidation from 1.0009 continued last week with a dip to 0.9725 but quickly rebounded. Current development suggests that such consolidation is possibly finished already. Initial bias is mildly on the upside for retesting 1.0009 first. Break will confirm resumption of whole rise from 0.9406 and should target 61.8% retracement of 1.0851 to 0.9406 at 1.0299. However, break of 0.9725 will now dampen this bullish view and will turn focus back to 0.9406 instead.

In the bigger picture, a medium term bottom is possibly formed at 0.9406 on bullish convergence condition in weekly MACD. Further rise is in favor for a test on key resistance level at 1.0851 and break there will confirm completion of the down trend from 2009 high of 1.3063. However, sustained trading below 55 days EMA (now at 0.9743) will dampen this bullish case and argue that down trend from 1.3063 (2009 high) is still in progress for another low below 0.9406.

In the longer term picture, firstly, there is no clear indication that the long term down trend from 2002 high of 1.6196 has reversed. Secondly, the medium term fall from 1.3063 is so far looking corrective. Hence, we're slightly favoring the case that price actions from 0.9056 are developing into a long term corrective pattern.

Heads up! Gold futures margin could be raised again

In a couple of moves the CME Group recently raised the margin for trading gold futures from 4,500 to 7,000 dollars. The move came as a response to increased volatility after an unprecedented strong rally during the last couple of months. The exchange is not trying to dictate the direction but in order to keep some integrity in the market they had to respond to the increased intraday volatility.

Have they done enough? Probably not, as volatility is still trading at almost twice the level compared with the first six months of 2011 and average daily price swings have continued to rise since the last margin increase  on August 24.

Gold margin as a  percentage of the contract value is still relatively low. Over the last two years margin requirements have hovered between 2.5% and 5.25% with 3.8% currently. 

As an example the equivalent for silver was more than doubled earlier this year 

How much:
Another rise could bring the margin up to somewhere between 8,200 and 9,000 dollars from the current level of 7,000 dollars representing an increase of between 17 and 28 percent.

Impact:
The previous two increases partly help to bring about the 200+ dollar correction and has so far not reduced intraday volatility.  Speculative involvement from hedge funds has been reduced over the last three weeks as margin increases make an impact on the position size they are allowed to hold.

With the increased potential for another round of stimulus from the Federal Reserve gold should be supported at this stage but as the recent correction highlights nothing ever goes in a straight line and discipline remains the key.

Daily Report: Currency Markets Calm While Risk Aversion Dominates Markets

Risk aversion continues to dominate the financial markets in Asian session today. Following the nearly -420 pts fall in DOW, Asian equities are broadly lower with Korea KS11 down most by more than -5%, Australian all ordinaries down -3% while Japan Nikkei, Hong Kong HSI and Singapore Straits Times all down more than -2%. Gold manages to ride of safe haven flow and jumps to new record high close to 1850 level against dollar. The current market is relatively calm though. Dollar and yen are generally firm but markets are stuck in tight range so far.

Concerns on European banking sectors and global slowdown are the two major factors for the bearish sentiments in the markets, the former being a near to medium term while the latter being the medium to longer term. Investors are on the one hand clearly dissatisfied with the lack of feasible solutions for the debt crisis out of the Franco-German summit. The proposed imposition of a new financial transaction tax across all Eurozone members even did irritate some investors. On the other hand, markets are concerned with the possibility of liquidity dry up in the interbank lending markets due to lack of trust. Fears that more banks will seek ECB's funding because of their heavy exposure to debts of Greece and other debt-ridden countries increased and would make the market outlook negative.

Meanwhile, markets are deeply concerned with slow down in the US after getting some poor economic data recently. All eyes will be on next week's Jackson Hole symposium and that might help keep downside of stocks contained in near term. After the Fed announced to keep interest rates at exceptionally low levels at least through mid-2013 on August 9, the market has been increasingly speculating that Chairman Ben Bernanke will signal additional easing measures at the meeting next week. According to a CNBC survey done after the FOMC meeting, 46% of respondents said the Fed will resume QE, up from 19% in the July survey while 37% said the Fed will not do QE, down from 68% in July. Also, of those who believe the Fed will resume QE, the asset purchases are expected to average at 628B, up from 377B in July. 

As for today, Canadian CPI will be a main focus. Economists expect headline CPI to moderate from 3.1% yoy to 2.8% yoy in July while core CPI is expected to rise from 1.3% yoy to 1.6% yoy. USD/CAD looks breaking out from recent triangle consolidation and a lower than expected figure today will likely trigger further rally through parity. Other data to be released include German PPI and UK public sector net borrowing.

A near term focus of the markets will be on how far gold could go, not just against dollar, but also against other currencies. XAU/EUR just makes another record high at 1291.67 today. The up trend has been accelerating after breaking of the upper rising trend line and momentum is still very strong in the pair. We'll stay bullish in XAU/EUR as long as 1201.96 support holds and expect a break of 1300 psychological level in near term. The up trend should also extend to 261.8% projection of 954.11 to 1088.1 from 1021.21 at 1371.96 in medium term. 

USD/CAD Daily Outlook

Daily Pivots: (S1) 0.9821; (P) 0.9880; (R1) 0.9961; 

Intraday bias in USD/CAD remains cautiously on the upside for a retest on 1.0009 resistance. As noted before, consolidations from 1.0009 might have completed at 0.9774 already. Break of 1.0009 will confirm resumption of whole rise from 0.9406. Also, sustained trading above 0.9912 resistance will confirm double bottom reversal pattern (0.9444, 0.94056) and should target 61.8% retracement of 1.0851 to 0.9406 at 1.0299. On the downside, below 0.9847 minor support will turn bias neutral and will extend the consolidation from 1.0009. But even in case of another fall, we'll stay bullish as long as 0.9741 support holds.

In the bigger picture, the break of 0.9912 resistance and 55 weeks EMA (now at 0.9918) is taken as a signal that a medium term bottom is already formed at 0.9406. This view is affirmed by bullish convergence condition in weekly MACD. Outlook is turned bullish for a test on key resistance level at 1.0851. Nevertheless, note that failure to sustained above 0.9912, followed by break of 0.9741 minor support, will dampen this bullish case and argue that down trend from 1.3063 (2009 high) is still in progress for another low below 0.9406.

Weekly Review and Outlook Euro Broadly Pressured after a Volatile Week, USD/JPY Heading Back to 80

It's been an extremely volatile week with lots of headlines flying around but three developments should be paid more attention to. Firstly, Euro was broadly weak in spite of ECB's rate hike and the signal of maintaining tightening bias. Even though the Greece situation was temporarily resolved, worries on contagion has indeed intensified. Secondly, the sharp reversal in US treasury yields took yen crosses broadly lower on and could be setting the stage for more upside in the Japanese yen ahead. Thirdly, even though the job data from US was deeply disappointing, selloff in risk was relatively brief and shallow. There is no confirmation of reversal in risk sentiments and dollar remains vulnerable to more selling ahead.

ECB raised the main refinancing rate by +25 bps to 1.5%, the highest level since March 2008. The interest rate corridor stayed unchanged at +/-75bps. While there were few changes in the language in the accompanying statement, the central bank noted the momentum of economic recovery has moderated. The ECB continued to describe the monetary stance as 'accommodative'. Concerning inflation, the ECB stated inflation rates will likely stay above +2% in coming months and it pledged to prevent faster inflation to give rise to 'second-round effects'. The central bank did not signal when the next rate hike will be. Yet, the comment that 'it is essential recent price developments do not give rise to broad based inflation pressures over the medium term' indicates further rate hike later this year cannot be ruled out. 

In spite of rate expectation, Euro's upside was limited by intensifying concern on debt crisis contagion. Moody downgraded the credit rating of Portugal to Ba2, or junk, citing there is 'growing risk that Portugal will require a second round of official financing before it can return to the private market'. The downgrade was also affected by the rollover plan for Greek debts. Moody worried that involvement of private investors in a new bailout plan for Greece will later be set as a pre-condition in Portugal's rescue plan. That is 'very significant because not only does it affect current investors, but it is likely to discourage new private sector lending going forward, and therefore reduce the likelihood that a country like Portugal will be able to regain access to the capital markets at a sustainable cost'. The downgrade triggered worries about a 'downgrade contagion' to Ireland. CDS on Portuguese, Irish and Greek sovereign debts rose to record highs last week. Indeed , CDS on Portugal is suggesting more than 50% chance of default in five years.

Technically, EUR/USD is still staying inside a triangle pattern in converging range, suggesting indecisiveness in the market. However, The sharp fall in EUR/CHF last week is opening up the case for another record low below 1.18 in near term. The steep decline in EUR/GBP also suggests that the cross is vulnerable to more selloff back to 0.86 level. EUR/JPY reversed ahead of 117.88 resistance and the technical development indicates that fall from 123.31 is likely resuming in near term to below 113. EUR/AUD's break of 1.3228 support also suggests that recent down trend is resuming for 1.2926 record low. We'd believe that 1.4 in EUR/USD and 1100 in XAU/EUR are important levels for Euro to defend. While Euro is bearish against swissy, yen and aussie, and to a lesser extent sterling, the selloff might not accelerate as long as these two levels holds. However, break will trigger much steeper and broad based selloff in the common currency. 

The benchmark 10 years US yield dropped sharply last week after disappointing US non-farm payroll report and just managed to hold 3.00%. Expectation on the non-farm payroll report was high the impressively strong ADP report. But, investors were hit back to reality after NFP showed merely 18k job growth in June and that's way off market expectation of 89k, not to mention that 150-200k adjusted expectation following the 157k ADP job growth. May's data was also revised down to 25k. April's figure was revised down slightly to 217k. May and June together were the worst two months total since last August and September. Unemployment rate also unexpectedly ticked higher to 9.2%. The poor job data reignited talks on the prospect of QE3. A former BoE policy maker, now a professor at Dartmouth college commented on the US situation and said "QE3 looks increasingly on the table. What are they going to do, let unemployment start rising again?"

Yen crosses were generally lower following US treasury yield on Friday. In particular, USD/JPY seemed to have finished the recovery pattern that started back in June and is possibly heading to below 80 again. Further weakness in USD/JPY, if accompanied by 10 year yield sustaining below 3%, will likely take other yen crosses lower ahead. 

DOW looked like going to have a take on 12876 high after the ADP number on Thursday but the brake was pressured hard after the poor NFP number. Nevertheless, at this moment, we're not seeing a reversal in stock year and that is possibly just a brief retreat. Stocks are indeed supported by the QE3 speculations. And as long as 12539 in DOW and 1330 in S&P 500 hold, we're still expecting more upside in stocks in near term. Similarly, commodities are still near term bullish as long as the CRB index stays above 340 level. And such developments will continue to support Canadian, Aussie and Kiwi. Indeed, AUD/USD and USD/CAD were just staying in tight range in spite of the post NFP pull back. Kiwi even managed to close at new record high against the greenback. Strength in equities, commodities and weakness in treasury yield will limit dollar's rebound attempt.  

 Dollar index continued to stay in triangle pattern from 72.69 last week. More sideway trading would likely be seen in near term. But after all, we'll stay bearish as long as 76.36 resistance holds and expect an eventual downside breakout to extend the down trend from 88.70 to 70.70 historical low. 

Bernanke's testimony at House Financial Services Committee on monetary policy and economy and FOMC minutes will be a main focus of the week. The minutes will likely provided details of the discussion on monetary policy normalization strategy. Bernanke will likely further provide details in the testimony. A main focus is on whether Bernanke would loosen up his guard on further quantitative easing in consideration of the poor job data in Q2. Another focus will remain on the development in Greece's second bailout package. It's reported that no progress was made on the details of private sector involvement in the second bailout after two weeks of negotiation among EU, ECB and IIF. EU finance ministers will also discuss the results of stress tests on 91 European banks that are due to be released on July 15 by the European Banking Authority.

• Monday: Japan household confidence; Canada housing starts
• Tuesday: BoJ rate decision; UK RICS house price balance, CPI, trade balance; US trade balance, FOMC minutes; Canada trade balance
• Wednesday: China GDP; Swiss PPI; UK jobless claims; Eurozone industrial production; US import prices, Bernanke testimony
• Thursday: New Zealand GDP; Eurozone CPI; US retail sales, PPI, jobless claims
• Friday: BoJ Minutes; Eurozone trade balance; US CPI, Empire state manufacturing, industrial production, U of Michigan confidence;

USD/JPY Weekly Outlook

USD/JPY edged higher to 81.46 last week but subsequent reversal and break of 80.76 minor support suggests that choppy recovery from 79.69 has completed already. Initial bias remains on the downside this week and break of 80.25 minor support will affirm the case that fall from 82.21 is resuming. Further break of 79.56/69 support zone will also confirm resumption of whole fall from 85.51 and should target 61.8% projection of 85.51 to 79.56 from 82.22 at 78.54 next. On the upside, break of 81.46 is needed to invalidate hits view or we'll stay cautiously bearish.

In the bigger picture, note that USD/JPY's rebound from 76.41 low was held by medium term long term falling trend line as well as the 55 weeks EMA. Thus, down trend from 124.13 could still be in progress. Current fall from 85.51 might now extend through 75.98 for a new record low. In any case, break of 85.51 is needed to revive the case that USD/JPY's down trend has finished. Otherwise, we'll stay cautiously bearish in the pair.

In the long term picture, the minimum target of trend resumption, that is, a break of 79.75 low (1995 low) was met. While the rebound to 85.51 was strong, there is no indication of reversal of the multi-decade down trend yet. We'd look at the structure of the rise, as well as whether USD/JPY could take out 100 psychological level before giving favor to the trend reversal case. Otherwise, we'll treat current price actions as part of a long term consolidation pattern at best.

Daily Report: Euro Lower on Portugal Downgrade but Loss Limited

Euro dipped overnight against dollar after Moody's downgraded Portugal's credit rating on concern that it will eventually see a second bailout following Greece. But so far, loss is limited as markets are awaiting tomorrow's ECB rate decision. Investors remain indecisive on EUR/USD and that's clearly manifested in the triangle pattern that started since May. On the one hand, the common currency is being supported by expectation of further rate hike from ECB, which a 25bps hike this week should be a done deal. On the other hand, on-going worry on the sovereign debt crisis in peripheral Eurozone countries is limiting any rally attempt of Euro. Overall, we'd believe that Euro's fate would very much depend on whether ECB Trichet would hint that the 25bps per quarter tightening cycle would continue or stop ahead.

Moody's cut the credit rating of Portugal to Ba2, 2 levels below investment grade, as there is 'growing risk that Portugal will require a second round of official financing before it can return to the private market' and the country may not be able to fully achieve its target of budget cut. Involvement of private investors in a new bailout plan for Greece will likely make the EU set the same pre-conditions in Portugal's rescue plan. According to the rating agency, 'that's very significant because not only does it affect current investors, but it is likely to discourage new private sector lending going forward, and therefore reduce the likelihood that a country like Portugal will be able to regain access to the capital markets at a sustainable cost'. Portugal is set to sell as much as EUR 1b of bills maturing in October and the result could trigger some volatility in the markets.

Dollar remains pressured by persistency in risk appetite in spite of the Portugal news. DOW was steady overnight and closed just -0.1% down. Asian equities are mixed with Nikkei up 110 pts. Main pressure on the greenback comes from commodities. Gold's break of 1500 level argues that recent price actions from 1577.9 high are developing into sideway consolidations rather than deep correction. Crude oil also managed extend recent rebound and is heading back to 100 psychological level. Fate of the dollar would very much depend on Friday's Non-farm payroll report and tomorrow's ADP employment should also trigger much interim volatility.

Dollar index recovers mildly this week after dipping to 74.13 but over all outlook remains bearish and another decline is still in favor. Recent price actions from 72.69 are merely consolidations in the larger down trend as the index is still kept below the falling trend line from 88.70. We'd expect another fall in near term to 73.50 support and break there will firm this bearish case. That is, the down trend from 88.70 should extend through 72.69 low towards 70.70 all time low. 

XAU/EUR rebounded strongly from 1021.2 as the boost from Greece resolution faded and as gold regained strength broadly. A near term bottom is formed and stronger rebound could be seen back towards 1088.1 high. But after all, beware that XAU/EUR is forming a diagonal triangle since 886.21 with rise from 1021.2 as the last leg. Hence, a medium term reversal is expected after a test on 1088.1 high. And, that could coincide with the eventual triangle breakout in EUR/USD.  

On the data front, UK BRC shop price index rose 2.9% yoy in June. Japan leading indicator improved to 99.8 in May. Looking ahead, Eurozone GDP finalized reading is expected to be unrevised at 0.8% qoq in Q1. German factory orders are expected to drop -0.5% mom in May. From US, main focus will be on ISM services which is expected to drop to 53.6 in June. 

Weekly Review and Outlook Risk Appetite Surged as on Greece Resolution, Swiss Franc Reversed

Risk sentiments had a drastic turnaround last week as Greece has secured the fifth tranche of bailout fund from EU at EUR 12b to avoid and immediate default. The strong rebound in US equities was impressive with DOW and S&P up 5.4% and 5.6% respectively during the week, both posting largest weekly gains since July 2009. Canadian dollar, Australian dollar and New Zealand were the strongest currencies last week in the risk seeking environment and were support by rebound in commodities in general. Meanwhile, safe haven assets suffered. Swiss Franc had a sharp and broad based reversal after making record highs against most major currencies in June. Gold, on the other hand, also tumbled through 1500 level against dollar and was extremely weak against Euro. Euro was the strongest among European majors while dollar was weak except versus yen and swissy.

EU finance minister are expected to approve to release the fifth tranche of the bailout fund to Greece after the country passed the new EUR 78b austerity package through parliament last week. The EU 12b fund of the EUR 110b bailout made last year should help Greece rollover debts maturing in July and August and thus avoid an immediate default. In addition, that should help Greece take one step closer to getting the second bailout, which could worth as much as EUR 85b. Austrian Finance Ministry said that the second bailout for Greece would have Eurozone nations and private investors contributing 70%. IMF would cover 70%. German and French officials are believed to be targeting around EUR 30b from private investors. Finance ministers are trying to wrap up the new aid plan at a July 11 meeting in Brussels. And together with the EUR 110b fund from he original bailout a year ago, the total package will be up to EUR 195b. The focus from now till July 11 would be on how Eurozone officials could come up with the EUR 30b private investors involvements.

Attention ahead would possibly starting to shift away from Greece as the second bailout look set to be concluded on July 11. Focus will turn back to growth and monetary policy. ECB officials remained hawkish last week and reaffirmed markets expectation of another rate hike this week. However, whether Euro could breakout from recent triangle consolidation against dollar would very much depends on markets expectation on further policy path. Currently, markets are only pricing in around 70% chance of another rate hike this year even though inflation stood at 2.7% yoy in June.

Sterling was a victim in drastic change in rate expectations in recent weeks. markets are now pricing a rate hike from BoE next May and that's a big change that in February, markets bet on a hike this May. Recent economic data provided no support to and earlier hike and indeed, comments from BoE officials suggest that some members are back considering more quantitative easing. So the pound would likely remain weak in near term.

Canadian dollar, on the other hand was boosted by strong inflation data, with CPI jumped to 3.7% yoy, well above expectation and far above BoC's 2% target. It's indeed the strongest level in more than eight years. While BoC Governor Carney still sounded worry on the fragility of the economic recovery, there are increasing speculation that the bank would be forced to act before the end of the year should inflation pressure persists. There are speculations that BoC would have a 25bps hike by September and another 25bps hike by the end of the year even though a rate hike is not fully priced in money markets until 2012.

Dollar was pressured by the strength in euro, stocks as well as crude oil last week even though gold's weakness and strength in treasury yields provided some support to limit downside. Dollar index's break of 74.48 support suggests that rebound from 73.50 has completed and near term outlook is now mildly bearish for a test on 73.50 support and then 72.69 low. 

Meanwhile, also note that dollar index remains held by long term falling trend line resistance from 88.70 (2010 high) and thus, there is no indication of reversal yet. Such down trend is still expected to continue for another below 72.69 towards 70.70 all time low. 

 Euro's strength against gold was very impressive last week and XAU/EUR's fall from 1088.1 accelerated to as low as 1021 last week. Current fall is set to extend further lower to 1000 psychological level next and then 55 weeks EMA at 991. Bearish divergence condition in weekly MACD and RSI do suggest that the trend in XAU/EUR is reversing and the focus will now be on whether XAU/EUR could break through 55 weeks EMA decisively with the current fall. 

 CAD/CHF was the biggest mover last week and more upside is highly likely in near term. While 0.8408 is a short term bottom, there is no clear evidence of trend reversal yet and focus will be on 0.9009 support turned resistance. Sustained break there will bolster the case that whole down trend from 2010 high of 1.1152 has completed and should pave the wave to 0.9333/9885 resistance zone. However, bounces of from 0.9009 will indicate that rebound from 0.8408 is merely a correction and the current down trend is still in progress for another low. 

AUD/JPY is another pair the worths noting. The strong rebound last week argues that triangle consolidation from 90.00 might be finished at 84.05 already. Further rise is expected initially this week and break of 87.58 resistance will affirm this case. That is rise from 84.05 would then be resuming rally from 74.48 as well as medium term up trend from 55.53. In such case, AUD/JPY should target 61.8% projection of 74.48 to 90.00 from 84.05 at 93.64 next.  

The Week Ahead

Three central banks will announce rate decision this week. BoE will keep things unchanged and would be a non-event. RBA's tone might not change much before getting a hand on Q2 inflation data and so might not move the markets much. ECB is widely expected to hike 25bps and everybody will try to get hints from Trichet on the probability of keeping the one 25bps per quarter cycle. Economic data, on the other hand, would likely drive much volatility in the markets. From US, we'll have ISM services and the usually market moving non-farm payroll. UK PMI construction and services will be watched by sterling bears for reasons to extend the selloff. Meanwhile, a number of important economic data would be released from Canada, Australia and throughout the week and should be closely watched.

• Monday: Australian retail sales, building approvals; Swiss retail sales; Eurozone Sentix investor confidence, PPI; UK PMI construction; Canada PPI
• Tuesday: Australian trade balance, RBA rate decision; UK services PMI; Eurozone retail sales; US factory orders
• Wednesday: Canada building permits; US ISM non-manufacturing; New Zealand GDP
• Thursday: Australian employment; UK industrial and manufacturing production, BoE rate decision; ECB rate decision and press conference; US ADP employment, jobless claims; Canada Ivey PMI
• Friday: Swiss unemployment; UK PPI; Canada employment; US non-farm payroll

EUR/CHF Weekly Outlook

EUR/CHF's strong rebound to 1.2332 last week suggests that fall from 1.3233 has finished at 1.1807 and a short term bottom is formed. Initial bias remains on the upside this week for further rise to 61.8% retracement of 1.3233 to 1.1807 at 1.2688. On the downside, below 1.2185 minor support will turn bias neutral and bring consolidations. But downside should be contained by 4 hours 55 EMA (now at 1.2070) and bring another rise. We'd expect consolidations from 1.1807 to continue for a while.

In the bigger picture, whole down trend from 1.6827 (2007 high) is still in progress and in any case, medium term outlook will remain bearish as long as 1.3233 reistance holds. The current down trend should target 138.2% projection of 1.8234 to 1.4391 from 1.6827 at 1.1516. Nevertheless, touching of 1.3233 resistance will indicate that a medium term bottom is formed and stronger rebound should be seen to correct the fall from 1.6827.

In the long term picture, fall from 1.6827 should be resuming whole down trend from 1993 high of 1.8234. The is some sign of re-acceleration as seen in weekly MACD and break of 138.2% projection of 1.8234 to 1.4391 from 1.6827 at 1.1516 will target 161.8% projection at 1.0609.

http://www.actionforex.com/

Weekly Review and Outlook Euro Tumbled on Greece Downgrade, EUR/CHF to Make New Record Low

Euro attempted a recovery last week as the drama on Greece continued. There were talks of "reprofiling" or "soft restructuring" of Greece debt as well ECB's opposition to such an idea. However, the common currency failed to sustain gain and was sold off sharply on Friday on fresh downgrade in sovereign debt ratings. Fitch downgraded Greece's rating by three notches from BB+ to B+, four notches below investment grade. Fitch warned that any move to extend the maturities of Greece bonds is considered a "default event" while the current B+ ratings incorporates expectations that "substantial new money" will be provided to Greece by the EU and IMF. Besides, Norway, Iceland and Liechtenstein froze payment of altogether 235m kroner of European Economic Area grants to Greece as it's "unclear whether the money already transferred to the Greek authorities was forwarded to the appropriate recipients."

Euro was seen broadly lower on Friday on the above news. Note that EUR/CHF is back pressing all time low at 1.24 level and is set to break it this week. EUR/AUD is probably heading back to record low of 1.2925 too. While the common currency managed to close the week higher against dollar, yen and sterling comparing to the prior week, it looks vulnerable to deeper decline. EUR/USD will likely head back to 1.4 level this week. Also, XAU/EUR was clearly strong on Friday and should take out 1075 record high soon.

Dollar was steady in range as commodities consolidated last week. Dollar index edged higher to 76 but turned sideway since then. The minutes of the FOMC meeting on April 26/27 showed some interesting points to note. Firstly, some voting members said they would only support another asset purchase program, i.e. QE3, only if there is a "significant change in the economic outlook, or the risks to that outlook". Secondly, "few" members argued that inflation outlook and economic conditions would warrant the first move of stimulus exit this year. However, thirdly, another camp also noted that early exit might "unnecessarily damp the ongoing economic recovery." Meanwhile, regarding exit strategies, "a majority of participants preferred that sales of agency securities come after the first increase in the FOMC's target for short-term interest rates."

A lot of discussion was carried out on what to do with the $2.7T in assets that the Fed is holding. Generally, "many of those participants also expressed a preference that the sales proceed relatively gradually." The first step, would involve allowing the $900b mortgage backed securities to mature without reinvesting the proceeds. Then, Fed would let the $1.5T treasury holdings gradually run down. And at some point, Fed will raise interest rates and then will actively sell its mortgage holdings in a steady program.

The minutes of May 5 BoE meeting revealed 6-3 vote split to left rates unchanged at 0.5%. The split was as market expected with Sentance maintaining his call fro 50bps hike while Dale and Weale voted for 25bps hike. Posen continued his call for additional asset purchase. One important point to note is that Dale and Weale, this time, said that the decision was finely balanced, arguing that they're now less hawkish than before.

BoJ left rates unchanged at between 0% and 0.1% on unanimous vote. The bank noted in the statement that the economy is facing "strong downward pressure, mainly on the production side, due to the effects of the earthquake disaster." However, the banks still expect the economy to "return to a moderate recovery path from the second half of fiscal 2011 as supply-side constraints ease and production regains traction." Hence, the bank decided to refrain from adding additional stimulus. The JPY 30T credit program and the JPY 10T asset purchase program was maintained unchanged. Note that Deputy Governor Nishimura dropped the call for expand the asset purchases too.

RBA signaled in its minutes that "if economic conditions continued to evolve as expected, higher interest rates were likely to be required at some point." However, there is urgency noted for rate hike and no indication on the timing. Near term outlook in Aussie will likely be highly correlated to gold prices which remains vulnerable to another fall after consolidating around 1500 level.

Technical Highlights

Dollar index's recovery lost momentum after hitting 76.00 and turned sideway. Another rise remains in favor with 74.80 minor support intact and current rebound from 72.70 should extend to medium term falling trend line (now at 76.85). At this point, we'd expect strong resistance from the trend line to limit upside and bring down trend resumption. Below 74.80 will flip bias back to the downside for a retest on 72.70 low first. However, sustained trading above the trend line resistance would argue medium term bottoming and should bring stronger rise to 38.2% retracement of 88.70 to 72.70 at 78.81 instead. 

XAU/EUR rose sharply to as high as 1070.46 last week and initial bias remains on the upside this week for 1075.30 resistance first. Break will confirm up trend resumption and should target 100% projection of 953.5 to 1041.7 from 998.55 at 1086.7. Nevertheless, as XAU/EUR is possibly developing into a rising wedge pattern, we'd expect strong resistance at upper trend line (now at 1092.6) to limit upside and bring near term reversal.  

EUR/AUD's sharp fall on friday suggests that decline from 1.4336 is possibly resuming. Initial bias will remain on the downside this week and break of 1.3227 support will confirm this bearish case and target a retest on 1.2925 record low. After all, there is no signal reversal and whole down trend from 2.1127 (2008 high) should still be in progress.

The Week Ahead

Here is a summary of the important events to watch this week:

• Monday: Eurozone PMIs
• Tuesday: German GDP final, Ifo business climate; UK public sector net borrowing: US new home sales
• Wednesday: BoJ minutes; German Gfk; UK GDP revision; US durables
• Thursday: Swiss trade balance, employment level; US GDP revision, jobless claims
• Friday: Japan CPI; UK nationwide house price; Eurozone M3, German CPI flash; Swiss KOF; US personal income and spending, pending home sales

Gold moves higher toward $1498 resistance area

Next target :

$1498 is the next target for Gold as it moves back higher today (see chart above).  A move above that level will next target the 1505.25 level which is the 38.2% of the move down from the May high and also trendline resistance area. (see chart below).

FX Closing Note: Death to fiat currencies?

To complete the thought in our title: Death to fiat currencies. Long live precious metals! Is this market decoupling from its former fundamental underpinnings and transforming into a bubble market centered on competitive devaluation? Will AUDUSD trade at 1.00 next week?

Recent market activity suggests that the market is only investing in currencies not based on traditional metrics like relative growth dynamics and interest rate spreads or even on risk appetite anymore (the former be all/end all for USD direction), but rather on the degree to which various countries’ central banks are bent on devaluing their fiat currencies. Is this just a temporary distraction that will at some point dissipates or are we rapidly falling into a competitive devaluation endgame, one that risks becoming a reflexive market (read up on your Soros for that one) that develops into a full-blown bubble?

If the answer to the latter question is yes, then EURUSD could very well trade at 1.45 or 1.50 relatively soon and AUDUSD to 1.05 or higher. But won’t the ECB and German officials begin to scream bloody murder already at a level of 1.40? And even the RBA might begin to protest starting at around parity in AUDUSD. And In this case, if every country around the world increasingly begins to join the competitive devaluation chorus and threatens intervention/lower rates/controls/you-name-it to prevent currency appreciation, it could spark a super-bubble in the only hard currency – precious metals, a bubble that could even result in the death of all fiat currencies as we know them if the logic of such a bubble is taken to its extreme logical endpoint.

This all sounds terribly dramatic – and the consequences are unimaginable. We bring up the scenario because many of the elements are in place for a super-bubble (or at least a significant bubble) situation to unfold, not because we necessarily believe it is high odds. But a few more missteps from the “right” places, and a bubble we will have. Lets hope for the sake of our fiat currency savings that the wild imaginings of the goldbugs stay in the realm of fantasy. There is always the in-between scenario as well - one that sees a further chunky aggravated sell-off in the USD and perhaps 1500 or 2000 dollar gold followed by a huge unwind of the feverish speculation in the opposite as the powers that be move to avert financial Armageddon.

Chart: Gold vs. selected currencies

If we look at gold vs. some of the majors and a couple of key EM currencies, we can see that the recent focus on the decoupling theme (inferior growth in the US and strong EM performance) is fading relative to the competitive devalution theme as gold has made significant gains on key emerging market currencies (BRL and ZAR shown here) though it is not yet at an all time high vs. many of those currencies Still, these recent gains in gold vs. EM currencies are remarkable considering the enormous inflows into EM countries and the very significant rally in EM equities over the last month. The chart also shows just how much respect the Euro is getting due to the tight ECB (not to mention the overhang from a short speculative market ill-prepared for this new competitive devaluation theme). AUD strength is also remarkable. The point at which all currencies underperform gold is perhaps the Eureka moment that tells us a precious metals bubble is underway. Could that come if the ECB and RBA begin to complain about the strength of their currencies – or will recent developments short-circuit as the death of fiat currencies turns out to be greatly exaggerated?

One of the ways to counter bubble risks here migh be on recognition of poor economic prospects for China and elsewhere in the developing world, which could short-circuit the risk-taking mania in long emerging market and commodities trades that are the flipside of short US dollar trades. Also vital for short-circuiting a new anti-fiat currency bubble is a Fed that declares it is not interested in seeing a disorderly devaluation of the US currency (which this is fast becoming) and if it ends up vastly undershooting the market’s expectations on the magnitude of the next round of QE2. The stakes are huge here – and for the short term at least, it appears that bubble fears may ride roughshod over the market for at least the short term – the momentum in this market is brutal.

With that, have a wonderful weekend and be very careful out there.

Weekly Commodity Update: The US Dollar sets the tone

The strong global equity rally has provided the main lift in the commodities rally lately. However, there are signs that the current rally in equities is running out of steam, which leave commodities under some pressure.  The US FED is prepared to ease further keeping rates at record low levels for some time, yet.  In Europe the default risk of weaker nations continues at elevated levels, which remains to be the dark cloud over recovery pundits.  That being said it still would appear that investors are overlooking many of the bad signs in the economy for now.

Although the CRB index is relatively flat, or only slightly positive, on the week as the energy sector continues to struggle, with what appears to be declining momentum. Overall, the general commodities complex is still failing to move higher, as is has revisited resistance levels seen several times this year.

Crude inventories continue to stay healthy and considerably above cyclical averages for this time of the year, with the same story applying to that of gasoline stocks, too.  There really is no sign of this trend being bucked.  The current supply situation does indicate that fundamentals are currently not strong enough to support a strong bullish move in Crude.  Actually, one of the main support factors as been the US dollar strength, which is currently under pressure, too, and could prove detrimental if the weakness continues.

Crude Oil remains inside the longer term bullish trend, however has failed to move above the 50 day moving average, which has been a good indicator for the bullish trend.  The longer term trend will come under fire at a move downwards towards the 71.80 level.  Lower highs in the price action can typically signal slowing momentum and price weakness.  A firm break of 71.80 could leave Crude in danger of further losses, targeting the low side of the 60’s, which will constitute a break of the longer term trend.

  We are entering a season with a traditionally strong transportation demand both for oil and dry bulk. Rough seas and weather delays usually provides additional support to freight rates. On the flip-side the vessel supply has never been larger.
With the global vessel supply being so high, it is likely to keep VLCC (Very Large Crude Carriers) rates subdued in the coming months, unless of course the contango of the oil curve becomes steep enough to warrant placing the vessels on floating storage or the ship-owners decide to remove vessels for maintenance.
In dry bulk, the demand for capesize vessels is dampened by the recent energy saving campaign and the real estate curbing measures in China.  The main drivers for panamax size vessels is the US grain export, that looks to outpace last year’s levels, the Indian iron ore season and the early winter coal fixtures.
The US grain sales outpaced levels compared to last year.  However, corn continues to outperform wheat trading and stockpiles could continue to drop to low levels not seen since 2007-08, as livestock farming also switches to corn in lieu of lost wheat production.

 The US dollar is very much in focus across most of the denominated assets.  The recent losses has had an effect on commodities in general, none the more so than Gold.  All time highs have been reached, falling just short of $1.300 on the spot markets.  The main contributors to the bull market appear to be central banks and producer hedge book buybacks, but anecdotal evidence around the market shows that most eyes are focused on the US dollar.

Various stock price indexes tested year-to-date extreme intraday lows

Summary: Various stock price indexes tested year-to-date extreme intraday lows and held them.
Utilities Stock Sector Relative Strength Ratio (XLU/SPY) moved above 4-month highs on 6/7/10 and remains neutral.

Health Care Stock Sector Relative Strength Ratio (XLV/SPY) moved above 2-month highs on 6/7/10 and is neutral.

Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 3-month highs on 6/7/10.

Materials Stock Sector Relative Strength Ratio (XLB/SPY) fell below 14-month lows on 6/7/10 and remains bearish. Absolute price of XLB fell below 9-month lows on 6/7/10 and remains neutral.

Industrial Stock Sector absolute price fell below its May low on 6/7/10 and remains neutral.

The following Relative Strength Ratios fell below 50-day SMAs on 6/7/10 and so turned neutral: S&P 500 Equally Weighted ETF (RSP/SPY), Small Cap Russell 2000 Index/Large Cap (IWM/SPY), and S&P MidCap 400/Large Cap (MDY/SPY).

The U.S. dollar price broke out to another new 14-month high on 6/7/10. USD main trend remains bullish.

Gold rose strongly to challenge its all-time high at 1249.7 set on 5/14/10. The main trend remains bullish.

Copper broke down to another new 7-month low on 6/7/10. Copper’s downtrend reflects current uncertainties about the global economic prospects.

S&P 500 Composite (SPX) tested year-to-date extreme intraday lows and held them. SPX remains in a deeply oversold position and at previous support, suggesting that bargain-hunting demand could appear again roughly where it has before, technically speaking.

Various price momentum oscillators show bullish divergence by holding above May lows while S&P 500 closing price made lower lows. These include RSI, Stochastics, MACD, MACDH, Directional Movement, CCI, etc.

The VIX Fear Index recently has been stuck in the 30s after rising to a 14-month high of 48.20 on 5/21/10. This might suggest some kind of divergence compared to price indexes, which are nearer their extreme lows of the year.

Clearly, excessive bullish sentiment has been wrung out of the stock market. This is a major change from last month. On 4/26/10, I wrote: “Investors Intelligence survey of stock market newsletter advisors, Call/Put Volume Ratios, and implied option volatility have shown bullish complacency in recent weeks. Excessive bullish sentiment sometimes precedes a shakeout to the downside.” We got that shakeout, and now it appears to be over.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Spotlight on event stocks: Here is a stock screen I designed to pick out potential event stocks, both Bullish and Bearish. Sometimes, stocks with large changes in price and volume are revealed to be deal stocks, sooner or later, or are the subject of some other extraordinary events, positive or negative.

Bullish Stocks: Rising Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
2.97% , MHS , MEDCO HEALTH
6.33% , BMY , BRISTOL MYERS
4.08% , GCI , GANNETT
3.86% , THC , TENET HEALTHCARE
0.58% , PWO , OTC Dynamic PS, PWO
4.27% , ESRX , EXPRESS SCRIPTS
1.79% , PSQ , Short 100% QQQ, PSQ
0.89% , PUI , Utilities, PUI
0.55% , TLH , Bond 10-20 Year US Treas, TLH
2.67% , FE , FIRSTENERGY
1.99% , PPL , PPL
1.87% , IAU , Gold COMEX iS, IAU
1.93% , GLD , Gold Shares S.T., GLD
0.74% , UTH , Utilities H, UTH
1.02% , NOVL , NOVELL
1.03% , SRE , SEMPRA ENERGY
2.73% , RYAAY , Ryanair Holdings plc
0.98% , NOV , NATIONAL OILWELL VARC0
0.65% , LLY , ELI LILLY
0.46% , PEG , PUBL SVC ENTER
2.69% , NEM , NEWMONT MINING
1.11% , MRO , MARATHON OIL
0.23% , IDU , Utilities DJ, IDU
0.68% , CNP , CENTERPNT ENERGY
1.09% , GENZ , GENZYME
1.00% , AEP , AM ELEC POWER
1.01% , MON , MONSANTO
0.94% , EIX , EDISON INTL
0.40% , MHP , MCGRAW HILL
1.71% , GIS , GENERAL MILLS
0.35% , CMS , CMS ENERGY
0.30% , FDL , Dividend Leaders, FDL
0.83% , D , DOMINION RSCS
0.63% , NI , NISOURCE
0.37% , SYY , SYSCO
0.54% , DGX , QUEST DIAG
0.13% , TE , TECO ENERGY
0.09% , PNW , PINNACLE WEST
0.08% , MCD , MCDONALDS
0.47% , VPU , Utilities VIPERs, VPU

Bearish Stocks: Falling Price and Rising Volume
Ranked by Price Change * Volume Change
% Price Change, Symbol, Name
-2.71% , PZJ , SmallCap PS Zacks, PZJ
-4.25% , RZV , Value SmallCap S&P 600, RZV
-1.42% , SWH , Software H, SWH
-8.14% , CVS , CVS
-2.45% , PMR , Retail, PMR
-2.83% , PSTL , Steel Global PS ETF, PSTL
-2.44% , JKJ , SmallCap Core iS M, JKJ
-10.43% , ABK , AMBAC FINL GRP
-1.70% , EWO , Austria Index, EWO
-2.25% , DSV , Value Small Cap DJ, DSV
-3.81% , XSD , Semiconductor SPDR, XSD
-1.46% , EWN , Netherlands Index, EWN
-2.40% , EWD , Sweden Index, EWD
-3.34% , KWT , Solar Energy MV, KWT
-3.06% , PEJ , Leisure & Entertainment, PEJ
-1.94% , JKG , MidCap Blend Core iS M, JKG
-1.84% , MTK , Technology MS sT, MTK
-2.80% , DSG , Growth Small Cap DJ, DSG
-2.69% , PKB , Building & Construction, PKB
-4.38% , GR , GOODRICH CORP
-4.76% , LVLT , LEVEL 3 COMMUNICATIONS
-1.87% , IJJ , Value MidCap S&P 400 B, IJJ
-4.52% , NVLS , NOVELLUS SYS
-4.81% , CECO , CAREER EDUCATION CORP
-3.98% , MVV , Ultra MidCap400 Double, MVV
-3.67% , IGW , Semiconductor iS GS, IGW
-4.76% , GD , GENERAL DYNAMICS
-3.26% , LEG , LEGGETT & PLATT
-6.61% , FCX , FREEPRT MCMORAN STK B
-4.36% , VMC , VULCAN MATERIALS
-1.80% , NYC , LargeCap Blend NYSE Composite iS, NYC
-5.23% , RIMM , RESEARCH IN MOTION LTD
-4.77% , LPX , LOUISIANA PAC
-2.44% , PPA , Aerospace & Defense, PPA
-1.75% , ITF , Japan LargeCap Blend TOPIX 150, ITF
-5.03% , KLAC , KLA TENCOR
-4.99% , LSI , LSI LOGIC
-2.30% , IGN , Networking, IGN
-1.71% , PWB , Lg Cap Growth PSD, PWB
-4.81% , ASH , ASHLAND

9 major U.S. stock sectors ranked in order of long-term relative strength:

Consumer Discretionary (XLY) Bullish, Overweight. The Relative Strength Ratio (XLY/SPY) rose above 12-year highs on 5/27/10 and remains bullish. Absolute price of XLY remains above its 200-day SMA and May low and remains neutral. Support 30.34. Resistance 34.39, 36.13, 38.25 and 39.09.

Technology (XLK) Neutral, Market Weight. The Relative Strength Ratio (XLK/SPY) rose further above 4-month highs on 6/4/10 but still remains neutral. Absolute price of XLK held above its May low and remains neutral. Support 20.64. Resistance 23.27, 24.16, 24.68, and 25.69.

Consumer Staples (XLP) Neutral, Market Weight. The Relative Strength Ratio (XLP/SPY) has performed about in-line with the broader market for the past 8-months and remains neutral. Absolute price of XLP also remains neutral. Support 25.78 and 24.95. Resistance 27.83, 27.95, 28.20, 28.75, 29.29 and 30.29.

Industrial (XLI) Bullish, Overweight. The Relative Strength Ratio (XLI/SPY) fell below its 50-day SMA on 6/1/10 and remains neutral, according to the 50/200 trend-following moving average system. Absolute price of XLI fell below its May low on 6/7/10 and remains neutral. Support 27.91. Resistance 32.41, 33.46, 34.24, 34.50, and 35.00.

Utilities (XLU) Neutral, Market Weight. The Relative Strength Ratio (XLU/SPY) moved above 4-month highs on 6/7/10 and remains neutral. Absolute price of XLU remains bearish, with price below SMAs and the 50 below the 200 SMA. Support 27.44, 25.76. Resistance 30.59, 30.91, 31.64 and 32.08.

Health Care (XLV) Neutral, Market Weight. The Relative Strength Ratio (XLV/SPY) moved above 2-month highs on 6/7/10 and is neutral. Absolute price of XLV fell below 6-month lows on 5/25/10 and remains neutral. Support 27.96. Resistance 30.83, 32.05, 32.18, 32.42, 32.69, 33.16, 33.37 and 33.74.

Financial (XLF) Neutral, Market Weight. The Relative Strength Ratio (XLF/SPY) fell below 3-month lows on 6/7/10 and remains neutral. Absolute price of XLF also remains neutral. Support 13.82 and 13.51. Resistance 15.67, 16.13, 16.90, 17.12, 17.16, and 17.87.

Energy (XLE) Neutral, Market Weight. The Relative Strength Ratio (XLE/SPY) fell below 2-year lows on 6/1/10 and remains bearish. Absolute price of XLE fell below its 8-month lows on 5/25/10 and remains neutral. Support 50.15 Resistance 58.11, 59.84, 62.30, 62.73, 69.95, and 78.10.

Materials (XLB) Neutral, Market Weight. The Relative Strength Ratio (XLB/SPY) fell below 14-month lows on 6/7/10 and remains bearish. Absolute price of XLB fell below 9-month lows on 6/7/10 and remains neutral. Support 28.87. Resistance 33.06, 35.47, and 37.56.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Emerging Markets Stocks ETF (EEM) Relative Strength Ratio (EEM/SPY) fell to a 12-month low on 5/20/10. EEM/SPY trend turned bearish on 4/16/10, according to strict moving average analysis. Absolute price of EEM fell to an 8-month low on 5/25/10.

Foreign Stocks ETF (EFA) Relative Strength Ratio (EFA/SPY) fell below 5-year lows on 5/26/10 and remains bearish. Absolute price of EFA fell below 10-month lows on 5/25/10 and remains bearish.

NASDAQ 100/S&P 500 Relative Strength Ratio rose above 9-year highs on 6/4/10 and remains bullish.

NASDAQ Composite/S&P 500 Relative Strength Ratio rose above 9-year highs on 6/3/10 and remains bullish. Absolute price of the NASDAQ held above its May low and remains neutral.

Russell 1000 Value ETF Relative Strength Ratio (IWD/SPY) remains neutral. Absolute price of IWD tested and held above its February low and remains neutral.

Growth Stock/Value Stock Relative Strength Ratio (IWF/IWD) rose above 3-month highs on 6/7/10 and remains neutral. Absolute price of IWF held above its May low and remains neutral.

The S&P 500 Equally Weighted ETF Relative Strength Ratio (RSP/SPY) fell below its 50-day SMA on 6/7/10 and so turned neutral. Absolute price of RSP held above its May low and remains neutral.

The Largest Cap S&P 100/S&P 500 Relative Strength Ratio (OEX/SPX) fell below the lows of the previous 22 months on 5/27/10 and remains bearish. Absolute price of OEX remains neutral.

The Small Cap Russell 2000 Index/Large Cap Relative Strength Ratio (IWM/SPY) fell further below its 50-day SMA on 6/7/10 and remains neutral. Absolute price of IWM held above its May low and remains neutral.

The S&P MidCap 400/Large Cap Relative Strength Ratio (MDY/SPY) fell below its 50-day SMA on 6/7/10 and so turned neutral. Absolute price of MDY held above its May low and remains neutral.

Crude Oil nearest futures contract price rolled to the downside and could test its low of 67.15 set on 5/25/10. Technical trends appear uncertain. Support 67.15 and 65.05. Resistance 75.72, 77.74, 78.81, 81.29, 87.15, 90.51, 98.65, and 102.84.

Gold nearest futures contract price rose strongly to challenge its all-time high at 1249.7 set on 5/14/10. The main trend remains bullish. Support 1196.9, 1168.0, 1156.2, 1124.3, 1084.8, 1045.2, 1026.9 and 989.3. Resistance: 1249.7.

Gold Mining Stocks ETF (GDX) Relative Strength Ratio (relative to the Gold bullion ETF, GDX/GLD) fell steeply on 6/4/10 and is neutral.

Silver/Gold Ratio turned bearish on 5/17/10 when it crossed below both 50- and 200-day SMAs, with the 50-day SMA below the 200-day SMA.

Copper nearest futures price broke down to another new 7-month low on 6/7/10. Copper’s downtrend reflects current uncertainties about the global economic prospects. Strength in Copper suggests renewed hope about prospects for the world economy, while weakness suggests doubts. Support 2.9005 and 2.811. Resistance 3.187, 3.2675, 3.3225, 3.795 and 4.27.

U.S. Treasury Bond nearest futures contract price rose above 5-day highs on 6/4/10, reflecting a flight to safety. Support 121.06, 119.26, 118.24, 118.12, 115.15, 114.06. 113.04, and 112.15. Resistance 126.15 and 130.31.

Junk/Investment-Grade Corporate Bonds Relative Strength Ratio (JNK/LQD) has been moving with the stock market and remains neutral.

U.S. Treasury Inflation Protected / U.S. Treasury 7-10 Year Relative Strength Ratio (TIP/IEF) fell below 6-month lows on 5/20/10 but still remains neutral for the intermediate-term trend. This implies that investors are choosing somewhat less inflation protection. Absolute price of TIP remains bullish.

The U.S. dollar nearest futures contract price broke out to another new 14-month high on 6/7/10. USD main trend remains bullish. Support 85.325, 83.07, 81.74, 80.14, 79.73, 79.61, 78.83, 78.20, 76.74 and 75.90. Resistance 89.71 and 92.53.

The Art of Contrary Thinking: The various surveys of investor sentiment are best considered as background factors. The majority of investors can be right for a long time before a major trend finally changes course. The Art of Contrary Thinking is best used together with more precise market timing tools.

Advisory Service Sentiment: There were 39.8% Bulls versus 28.4% Bears as of 6/2/10, according to the weekly Investors Intelligence survey of stock market newsletter advisors. The Bull/Bear ratio fell to 1.40, up from 1.35 the previous week. The current Bull/Bear ratio has fallen substantially from its peak at 3.36 set on 1/13/10, which was the highest bullish sentiment in 6 years. The 20-year range is 0.41 to 3.74, the median is 1.51, and the mean is 1.57.

VIX Fear Index recently has been stuck in the 30s after rising to a 14-month high of 48.20 on 5/21/10. This might suggest some kind of divergence compared to price indexes, which are nearer their extreme lows of the year. A high and rising VIX suggests increasing bearish sentiment. VIX is a market estimate of expected constant 30-day volatility, calculated by weighting S&P 500 Index CBOE option bid/ask quotes spanning a wide range of strike prices for the two nearest expiration dates.

VXN Fear Index recently has been stuck in the 30s after rising to a 14-month high of 48.89 on 5/21/10. This might suggest some kind of divergence compared to price indexes, which are nearer their extreme lows of the year. A high and rising VIX suggests increasing bearish sentiment. VXN measures NASDAQ Volatility using a method comparable to that used for VIX.

ISEE Call/Put Ratio fell to .059 on 5/7/10, a low level that indicates bearish sentiment. Its 2-year mean is 1.20, and its typical range is 0.69 to 1.71, which represents two standard deviations from the mean.

CBOE Put/Call Ratio rose to 0.96 on 5/20/10, its highest level of the year. A high level indicates bearish sentiment. The 2-year mean is 0.70, and the typical range is 0.44 to 0.96, which represents two standard deviations from the mean.

The Dow Theory again confirmed a Bullish Major Trend on 4/26/10, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 18 months. The Dow Theory signaled the current Primary Tide Bull Market on 7/23/09, when both the Dow-Jones Industrial Average and the Dow-Jones Transportation Average closed above their closing price highs of the previous 6 months. That 7/23/09 bullish signal reversed the previous bearish signal: the two Averages signaled a Primary Tide Bear Market on 11/21/07, when both Averages closed below their closing price lows of August 2007.

S&P 500 Composite (SPX) tested year-to-date extreme intraday lows and held them. SPX remains in a deeply oversold position and at previous support, suggesting that bargain-hunting demand could appear again roughly where it has before, technically speaking. Support 1040.78, 1029.38, 1019.95, 1012.42, and 1008.55. Resistance 1109.17, 1130.29, 1151.41, 1173.57, 1181.49, 1219.80, 1220.03, and 1228.74.

S&P 500 Cash Index Potential Resistance
1576.09, high of 10/11/2007
1552.76, high of 10/31/2007
1523.57, high of 12/11/2007
1498.85, high of 12/26/2007
1440.24, high of 5/19/2008
1406.32, high of 5/29/2008
1381.50, Fibonacci 78.6% of 2007-2009 range
1366.59, high of 6/17/2008
1335.63, high of 6/25/2008
1313.15, high of 8/11/2008
1274.42, high of 9/8/2008
1255.09, high of 9/12/2008
1238.81, Fibonacci 78.6% of 1,576.09 high
1228.74, Fibonacci 61.8% of 2007-2009 range
1220.03, high of 9/25/2008
1219.80, high of 4/26/2010
1181.49, Fibonacci 78.6% of 2010 range
1173.57, high of 5/13/2010
1151.41, Fibonacci 61.8% of 2010 range
1130.29, Gann 50.0% of 2010 range
1109.17, Fibonacci 38.2% of 2010 range

S&P 500 Cash Index Potential Support
1040.78, low of 5/25/2010
1029.38, low of 11/2/2009
1019.95, low of 10/2/2009
1012.42, Gann 37.5% of 2009-2010 range
1008.55, Fibonacci 38.2% of 2009-2010 range
991.97, low of 9/2/2009
978.51, low of 8/17/2009
956.23, high of 6/11/2009
943.29, Gann 50.0% of 2009-2010 range
878.04, Fibonacci 61.8% of 2009-2010 range
874.17, Gann 62.5% of 2009-2010 range
869.32, low of 7/8/2009
805.17, Gann 75.0% of 2009-2010 range
785.13, Fibonacci 78.6% of 2009-2010 range
666.79, intraday low of 3/6/2009

One-Day Ranking of Major ETFs, Ranked from Strongest to Weakest of the Day:
% Price Change, ETF Name, Symbol

4.46% Silver Trust iS, SLV
1.93% Gold Shares S.T., GLD
0.77% Bond, 20+ Years Treasury, TLT
0.61% Utilities SPDR, XLU
0.47% Utilities VIPERs, VPU
0.42% Bond, Corp, LQD
0.41% Bond, 10 Year Treasury, IEF
0.29% Bond, Aggregate, AGG
0.19% Commodity Tracking, DBC
0.08% Bond, TIPS, TIP
0.00% Preferred Stock iS, PFF
-0.02% Bond Muni ATM-Free S&P iS, MUB
-0.04% Bond, 1-3 Year Treasury, SHY
-0.14% Health Care SPDR, XLV
-0.19% India PS, PIN
-0.27% Financial Preferred, PGF
-0.28% Oil, Crude, U.S. Oil Fund, USO
-0.28% Hong Kong Index, EWH
-0.28% India Earnings WTree, EPI
-0.32% Bond EmrgMkt JPM iS, EMB
-0.39% Dividend High Yield Equity PS, PEY
-0.41% REIT Wilshire, RWR
-0.42% South Africa Index, EZA
-0.42% Thailand MSCI iS, THD
-0.44% Realty Cohen & Steers, ICF
-0.51% Real Estate US DJ, IYR
-0.52% Switzerland Index, EWL
-0.54% REIT VIPERs, VNQ
-0.60% Dividend DJ Select, DVY
-0.64% Value LargeCap Dynamic PS, PWV
-0.67% Bond Ex-US Treas, BWX
-0.69% Bond, High-Yield Corporate, HYG
-0.77% Consumer Staples SPDR, XLP
-0.79% United Kingdom Index, EWU
-0.81% Malaysia Index, EWM
-0.82% Agriculture DB PS, DBA
-0.84% Energy DJ, IYE
-0.85% Turkey MSCI iS, TUR
-0.86% Canada Index, EWC
-0.87% Energy SPDR, XLE
-0.88% Natural Resource iS GS, IGE
-0.91% Belgium Index, EWK
-0.92% Europe 350 S&P Index, IEV
-0.93% Value EAFE MSCI, EFV
-0.95% Dividend Appreciation Vipers, VIG
-0.95% China 25 iS, FXI
-0.97% Germany Index, EWG
-1.01% Singapore Index, EWS
-1.02% Dividend International, PID
-1.03% Dividend SPDR, SDY
-1.07% Energy Global, IXC
-1.08% European VIPERs, VGK
-1.08% Italy Index, EWI
-1.10% Energy VIPERs, VDE
-1.11% Mexico Index, EWW
-1.11% Global 100, IOO
-1.12% France Index, EWQ
-1.18% DIAMONDS (DJIA), DIA
-1.18% Small Cap EAFE MSCI iS, SCZ
-1.18% Growth S&P 500/BARRA, IVW
-1.18% Global ex US ACWI iS, ACWX
-1.19% Chile MSCI iS, ECH
-1.19% EMU Europe Index, EZU
-1.21% S&P 500 iS LargeCap Blend, IVV
-1.23% Growth EAFE MSCI, EFG
-1.25% S&P 500 SPDRs LargeCap Blend, SPY
-1.26% EAFE Index, EFA
-1.28% Value VIPERs, VTV
-1.32% LargeCap Blend S&P 100, OEF
-1.34% Value S&P 500 B, IVE
-1.37% Indonesia MV, IDX
-1.38% Growth 1000 Russell, IWF
-1.39% Emerging VIPERs, VWO
-1.40% Latin Am 40, ILF
-1.42% Value 1000 Russell, IWD
-1.45% Technology SPDR, XLK
-1.45% LargeCap 1000 R, IWB
-1.46% Netherlands Index, EWN
-1.48% LargeCap VIPERs, VV
-1.56% Emerging Markets, EEM
-1.56% Telecom DJ US, IYZ
-1.57% LargeCap Blend Russell 3000, IWV
-1.58% Growth VIPERs, VUG
-1.60% Spain Index, EWP
-1.61% Japan Index, EWJ
-1.63% Blend Total Market VIPERs, VTI
-1.63% LargeCap Blend S&P=Weight R, RSP
-1.63% Emerging 50 BLDRS, ADRE
-1.66% Pacific VIPERs, VPL
-1.70% Austria Index, EWO
-1.71% Pacific ex-Japan, EPP
-1.72% Brazil Index, EWZ
-1.74% Value MidCap Russell, IWS
-1.77% Financial DJ US, IYF
-1.79% Materials SPDR, XLB
-1.82% Financials VIPERs, VFH
-1.82% Growth LargeCap NASDAQ 100, QQQQ
-1.85% China LargeCap Growth G D H USX PS, PGJ
-1.85% South Korea Index, EWY
-1.87% Value MidCap S&P 400 B, IJJ
-1.87% Capital Markets KWB ST, KCE
-1.89% Taiwan Index, EWT
-1.90% Consumer Discretionary SPDR, XLY
-1.93% MidCap Russell, IWR
-1.94% Technology DJ US, IYW
-1.98% Financial SPDR, XLF
-1.98% MidCap S&P 400 SPDRs, MDY
-2.04% Biotech SPDR, XBI
-2.05% Info Tech VIPERs, VGT
-2.07% Growth MidCap Russell, IWP
-2.08% MidCap S&P 400 iS, IJH
-2.08% Basic Materials DJ US, IYM
-2.13% Value SmallCap VIPERS, VBR
-2.16% Russia MV, RSX
-2.22% Financial Services DJ, IYG
-2.25% Australia Index, EWA
-2.26% Metals & Mining SPDR, XME
-2.27% Growth MidCap 400 B, IJK
-2.30% Networking, IGN
-2.36% Value SmallCap Russell 2000, IWN
-2.36% Small Cap VIPERs, VB
-2.40% Sweden Index, EWD
-2.45% SmallCap S&P 600, IJR
-2.46% Value SmallCap S&P 600 B, IJS
-2.52% Growth BARRA Small Cap 600, IJT
-2.57% Industrial SPDR, XLI
-2.57% SmallCap Russell 2000, IWM
-2.62% Water Resources, PHO
-2.81% Growth SmallCap R 2000, IWO
-2.88% Growth SmallCap VIPERs, VBK
-2.89% Transportation Av DJ, IYT
-3.18% Microcap Russell, IWC
-3.20% WilderHill Clean Energy PS, PBW
-3.67% Semiconductor iS GS, IGW
-3.74% Homebuilders SPDR, XHB
-3.81% Semiconductor SPDR, XSD
-4.25% Value SmallCap S&P 600, RZV