Friday, October 8, 2010

Skeleton Shift Update: Market Commentary Oct 8, 2010

After yesterdays "assault" at the 1.40 level on the EUR/USD, prices pulled back 150+ pips to the downside and since its over night lows, has traded up as much as 100 pips. Currently prices are trading to the downside from its 8 hour highs. ON the hourly the 60 minute 50 SMA is being tested, and since 2:00 am has been strong hourly support.

At this point in time arguments for the bull and bear picture is equally attractive. Yesterdays 1.40 test showed that the word was watching and waiting for 1.40 to break as a huge amount of sellers entered at that level.

As a fellow trader SAUROS said, "The Landscape is bullish, but in the face of such strong selling it is hard to go against it." This is especially true in light of the daily chart failing to make a clean candle close above the .681 FIB (1.51 -> 1.19). However,I am not ready to be bearish yet amongst the current high uncertainty. The NFP announcement at 8:30am today is to set the today for today's and next week's trading. Expectations are rather bullish on the numbers, and I am in agreement with expectations (54K -> 5K). However a surprise could completely tank the dollar.

A retest at the 1.40 would be critical in deciding next weeks direction. A strong close above the 1.40 mark by Friday's FX close may continue the bull trend we been seeing up into the 1.41 range in early next week trading. A fail in the 1.40 mark leaves the EUR/USD to fall as much to the mid 1.35 range.

In light of the upcoming NFP unless you are playing the report I would suggest following the price direction set post announcement, as there is too much risk on the upside and downside.

NFP in regards to equities and crude:

If one believes in the equity oil correlation more so these days (vs the dollar crude corr), a negative surprise in NFP could send equities lower from its recent highs and causing oil to revisit its overnight lows of 81.00 on QM NOV 10 contracts.

A positive reaction floating equities can mean crude breaking into the 84 territory.

In terms of US equities, the Daily SPX charts indicating some selling pressure in the coming days, but is overall bullish to the 1190's+ ranges in the coming. It is my view that there is not enough volume to sustain equities to break the 1200 level. In my yesterday's post I noted an article that highlights a good number of HF managers who are still bearish equities. With the current volume levels its my believe that big mutual fund guys have been forcing prices high and may not be fundamentally sustainable.

However, if one equity earnings may change the volume story if they are indeed positive. However, if big corporates are really sitting on big piles of cash and are not investing in light of to coming election, the earnings may be rather flat.

Take Away:

  • Opt out of the dollar trade until post NF
  • Crude maybe a good play in the coming weeks via equity correlations however, with NFP coming it one would be wise to tighten stops or hedge
  • If bullish the daily is indicating a pull back which would make for a good entry if expecting the higher 1190+ range.

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