What happened to the weakness of Sterling?

The Macro Trader’s view:

The Pound has staged a sometimes volatile recovery for much of this year. It is now far higher than the lows it reached during November and December 2008 when traders thought the UK would suffer most of the G7during the recession.

The Pound recovered as it became clear that the UK was not uniquely suffering. The US, Eurozone and Japan have also suffered steep contractions in economic growth. Nonetheless, traders recently began again to question the relative strength of the UK after surprisingly negative comments from Bank of England Governor King.

Additionally, the credit rating agencies raised a question mark over the UK’S Sovereign credit rating and many questioned the sustainability of the UK’S current fiscal stance which looks disturbingly weak for years ahead.

Moreover, last week seemed to answer the question when a worse-than-expected Q2 GDP report was released. It showed the worst year-on-year GDP contraction in 60 years. But one week later the Pound is looking to resume its recovery against the Euro and is holding up against the Dollar, Why?

The market saw last week’s GDP data as grim, but the quarter on quarter report, while worse than consensus, was much better than the Q1 report, and offered the prospect that the worst of this contraction was over.Additionally, retail sales last week came in stronger at 1.2% on the month and 2.9% on the year, so consumer demand remains alive and well, but of equal importance is the housing market.

Here too data has been improving and seems to show the housing market at a turning point. Today saw the release of the Nationwide Building Society House price survey and it rose by 1.3% on the month with the 3 month on 3 month rate also positive. It has now shown house prices rising for 4 out of the last 6 months.

The Halifax survey, although more patchy, has also recorded rising prices and the Land registry has for the 1st time in 18 months shown a price increase.

So while a boom isn’t around the corner and there is a very realistic prospect of growth resuming later this year, the economy is clearly emerging from the worst of the downturn. How vulnerable then is Sterling to the downside against the three Majors? For choice, we are wary of Cable. But Sterling looks powerfully support against both the Yen and the Euro

The Technical Trader’s view:

WEEKLY SPOT CABLE CHART

Throughout June July and August the market’s rally stalled. Technically there has been good resistance to overcome. And that resistance remains. But equally there is no stomach for a sell-off

WEEKLY CHART

The weakness of Sterling over the period of uncertainly from early June meant a serious attack on the resistance above the market at 0.8639. That resistance held. And now there is a Key Reversal on the cards for the week.Watch Friday’s close.

WEEKLY CHART

The weakening of Sterling from early June saw a bear assault on the support from the High at 151.50. But that support has held. And while there is no clear reversal signal yet, the market is free to go ahead.

Mark Sturdy, John Lewis
Seven Days Ahead

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Short Term Bulls Slip Up in Crude Oil

The Commodity Trader’s view - The rebound in Crude Oil (NYMEX) seen in July, off clear technical support, was no surprise. But we questioned the longevity of this, believing that the bears still had something up their sleeve. We therefore had assumed that this bounce was of a corrective/temporary nature, and decided to maintain a bearish stance in the Commodity Trading Guide. So far, we remain happy with this.

• WEEKLY CHART – CONTINUATION: After a base formed below the key 50.00 area, the recovery came to a halt just ahead of the 38.2% retracement on this continuation chart. We soon turned s/term bearish after this point (please refer to our 25th Jun Update).
• DAILY CHART (NYMEX) – SEP-09: Clear support from the Apr high and 50% pullback prompted a strong rally, which violated the 67.22 23-Jun low. We have been assuming that this recovery would not last – currently there has emerged strong resistance from the 61.8% bounce level – we think there is a good chance that the 59.30 13-Jul low will come under pressure in due course. The projected bull channel base at 57.25 currently, plus falling return line at 56.70, offers the next support – but there is also a lower Fibo projection which looks interesting – this will be shown in the next Commodity Guide. Theoretical shorts at 66.60 in the Guide will now favour reducing stops to just above the 68.99 27-Jul high, say 69.25, still targeting 60.00 for partial profits. Now finally a quick look at the Brent Crude chart…
• DAILY CHART (BRENT CRUDE) – SEP-09:: The Brent contract has been stronger – the recent rebound failed just above the 76.4% bounce level. Although not dramatic (a more decisive blow-off move is ideal) there was technically a Key Reversal Day on 29th Jun. A break below the area of the 66.58 23-Jun low would be the next bear sign here.

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Early Reversal Signs in EUR/USD

The FX Trader’s view - Following an early July high of 1.4337 we had, for various technical reasons, adopted a somewhat speculative bear stance in EUR/USD. After an initial move down (to our first ‘profit-taking’ level) subsequent consolidative action eventually sidelined us – but now, the negative signs are creeping back again…

• MONTHLY CHART: Support on the long term chart has come in above 50% so far. But any rallies in price continue to be viewed as corrective/temporary, like that of late last year. Note that the old broken rising support/return line could still be exerting its influence here. It is possible, over time, for this market to slip back to the 76.4% retracement, near 1.0000 – there is an interesting Fibo projection down here too…
• DAILY CHART: In Jun the market had come to a halt not far above a Fibo projection we had previously calculated at 1.4270. Clear support came from the 1.3737 Mar high, and we had viewed subsequent consolidative action as the precursor to another bear leg. We had sidelined after the break through falling resistance, but saw the small channel top projection as key to any bull success/bear failure. It has provided excellent resistance! Looking closer…
• We switch to a candlestick chart to highlight the 28-Jul Key Reversal Day – ideally this is normally marked by a notable blow-off move on the day, but here, at least, the day was marked by steadily down-trending prices followed the next day by further weakness that broke the 1.4118 23-Jul low and then closed below that old falling resistance/return line. A close below the channel base (1.3920 currently) would confirm the bear signs, but we will adopt an aggressive bear stance ahead of this, while the 1.4303 28-Jul high stays intact. The initial target would be a retest of the 1.3747/37 support, ahead of the 1.3618 38.2% retracement.
• Preliminary thoughts for aggressive sellers on rallies are to sell 10 ticks ahead of the 61.8% bounce level, from whatever s/term low exists at the time (1.4190=current 61.8% level), initial stops ideally just above 1.4303, but at minimum above the 76.4% level (1.4233 currently). Partial profits would either be targeted at the small channel base or towards 1.3747/37.

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Cable Bears Remain a Threat

The FX Trader’s view - As with other markets GBP/USD has been broadly consolidative during June and July, with upside attempts being successfully repelled so far. In recent FX Trading Guides we have wondered if the 30-Jun spike to 1.6744 and drop back marked a blow-off move, in preparation for a better bear phase – and we still believe this is a prospect.

• WEEKLY CHART: Note how the 2009 bull move has stuck around the 38.2% level of the entire prior move down, and is also capped by the 50% level of the downleg that started from 2.0153 Jul-08 high.
• DAILY CHART: In the FX Trading Guide we had noted potential resistance from the small 76.4% level at 1.6565, which has worked very nicely. (we currently hold theoretical short positions with stop just above 1.6600) However, bears still need at least a close below the 1.5982 08-Jul low for a decent confirmation of their stance – the small channel base projection runs near here too now. We would then initially target towards 1.5500, the 38.2% pullback level. In some of the markets we cover we had recently switched to a sidelined stance, but we had retained our bearish stance in GBP/USD. This fits in with our s/term bullish view of EUR/GBP (please refer to a previous Update for details).

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How good is the S&P?

The Technical Trader’s view:

WEEKLY FUTURES CONTINUATION CHART

The drama of the market is clear enough: a Head and Shoulders Reversal may have completed.
Traders need the close on the week to be above the Neckline…but that may be to wait too long
WEEKLY FUTURES CONTINUAITON CHART

This is fascinating: note the nearly weekly Key Reversal, which was the result of bouncing of the Prior High support at 872.
The market has got back through the recent High at 957.20 giving an additional stimulus …And now the first break of the Neckline -completion of the H&S Reversal pattern?Look closer still…

DAILY FUTURES CHART

The simultaneous break up through the 942 High and then the 952.50 high will certainly stimulate fresh short-term buying. The true Day Key Reversal from the 13th July 2009 is clear – and note that is it also a Double Bounce from the 866 High.

The market has smashed the Prior High Pivots.
All in good volume
Fresh buying to come!

The Macro Trader’s view:

After almost three months of sideways price action following a rejection of the lows, the S&P is on the verge of re-establishing a new bull run. The earlier rally away from the lows of March was fuelled by belief the US was emerging from recession and would begin to grow again later in the year, but that optimism gave way to serious doubts over the economy’s ability to grow when the Banks were still, if not in intensive care, not yet ready to check out of Hospital. But sentiment in markets can change quickly. In recent weeks exactly that has occurred: traders have again begun to believe the US economy is on the mend as the leading economy. Banks have reported stronger profits at the same time as macro-economic data has continued to show improvement.- the ISM non-manufacturing survey has continued to advance closer to 50.0,- Pending home sales have increased,- Housing starts and building permits have strengthened, and- Retail sales have been broadly stronger than expected.

Additionally, the Fed has stopped worrying about deflation and expects the economy to begin growing later this year, and although a rapid recovery isn’t expected, and they expect unemployment to rise a little further, the worst of the crisis looks past. Today, Goldman Sachs became the first US Bank to repay the bailout funds it received at the height of the financial crisis, with other leading Banks likely to follow.

And as the quarterly reporting season goes on and several bell weather firms in the consumer sector ( Starbucks and Apple) report better than expected results that suggest the consumer remains alive and well, equity markets look buoyant. While data could yet throw out the odd unhelpful surprise, which s occurs at major turning points in the cycle causing traders to pause, we believe the S&P is building into a new Bull Market. As ever, timing entry will be the key.

Mark Sturdy,John Lewis
Seven Days Ahead

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Carbon Emissions Allowances - The EUA Contract

The Commodity Trader’s view - This week in the Commodity Trading Guide we commenced regular coverage of EUA – (Carbon) Emissions Allowances. Interest and, accordingly, volume is growing strongly in this market, and the charts lend themselves well to technical analysis. In this Update we reproduce our analysis from the Guide.

• MONTHLY CHART – CONTINUATION: The interesting points to note here are: • This long term chart has channelled very well – the base projection was briefly eroded in early 2009 • If we’d been charting this much sooner we would have calculated a 8.52 equality target (33.05-12.22 downmove extended off 29.35 high) • For non-technical reasons there is currently a floor around 8.00 All the above combined to support the market - we now assume that a medium/long term recovery phase is underway.
• WEEKLY CHART – CONTINUATION: For clarity, the candlestick chart here reveals, bar a few ticks, a bearish Key Reversal Week in Jul-08, marking the start of the major leg down. More recently there was another one in May, marking the start of the latest pullback phase. Resistance from 15.85/16.22 is clear (May high and 38.2%). - a break higher would bring into focus prior 18.25/18.80 lows and the 18.73 50% level, where we would expect further resistance to emerge. Note how the start of the final downleg segment in late 2008 coincides with the 38.2% retracement – underlying Fibo forces at work?....Of course!
• Recently the market had stuck at the 38.2% pullback. A s/term bull signal came from the break from the small bear channel top projection. Last week saw resistance around the small 61.8% level; the next test for the bulls would be the small 76.4% level just above 15.00 – resistance soon would not surprise. We don’t know yet if there is another downleg to come, that breaks below the 12.42 Jun low. 13.70 26-Jun high offers first support, but of more interest is the rising support line at 13.35 currently, ahead of that 38.2% area around 12.90. A good close below the latter would show that another downleg was underway. Meanwhile we await better clarity in the s/term chart structure - we have adopted a sidelined stance for now.
• Interested readers are invited to track the progress of this market for a month, free of charge via our trial subscription offers. This would also qualify for a year’s free Updates too. Finally, note also the correlation between EUA and Crude Oil.

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Euribor: poised at a pivot or stuck in a rut?

The Macro Trader’s view:

As recently as late spring the ECB declared that the bottom of the recession would be plumbed by the middle of this year, and growth would resume during 2010. But no sooner had they spoken than key industrial and manufacturing data turned decidedly weaker, especially in Germany.

This caused a major rethink among traders, who launched a month-long rally as they began to speculate that the ECB might have to review its interest rate policy and perhaps consider reducing interest rates to below 1.0%, something they had said wasn’t a path they wished to take.

And questions were asked about the way the ECB was applying Quantitative Easing. Was their version working? It meant pumping record amounts of liquidity into the Banking system and buying only covered bonds.

But, once again, events took an unexpected turn. German factory orders and German industrial production rose by much more than expected; so much so, that analysts immediately began speculating that the German economy, and by extension, the Euro zone economy was indeed beginning to stabilise.

Predictably Euribor began to trade lower, as thoughts of further policy actions from the ECB began to evaporate. Where on earth is this market left?

Should traders now turn bearish, or will recent data prove yet another false dawn? Only this week Euro zone industrial production data came in weaker than expected.

In truth, we judge this market is likely to remain range-bound for a further period. The recent stronger German data seems more than a mid-trend blip. But a bigger improvement would be needed right across the Euro zone before the ECB will even consider tightening interest rates. We cannot see that happening at all this year.

And, given that the ECB has relied mainly upon pumping liquidity into the Banking system, we judge that policy is likely to continue too. Especially since Euro zone Banks still have approximately EUR 282.0B of toxic assets on their balance sheets.

We judge Euribor is likely to trade within a range for a further period, lasting at least through the summer, defined by the low caused by the sell-off in response to the US non-farm payroll report in June and the highs made over the last several days.

Day traders may find that there is very short-term price action to prey upon, but longer-term traders should anticipate a frustrating period ahead

The Technical Trader’s view:

WEEKLY CHART
The clear trading range has been defined since the beginning of the year. Look closer

DAILY CHART
Today’s reluctance to drive down through the first support of substance at the Prior High at 98.20 is revealing. Until that breaks the bears have nothing to crow about. And the bulls? For the moment they still have the possibility of a renewed assault on the All Time High, or, more precisely, the twin Highs at 98.36/7. If they were to break there would be no stopping the market. That is the nature of Pivots. But until then, stand aside!

Mark Sturdy, John Lewis
Seven Days Ahead

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US Dollar/Yen Downside Risk

The FX Trader’s view - Last week important supports in USD/JPY were violated, swinging the directional bias in favour of shorter term bears. Now that the dust has settled we take a look at the current technical position of this market.

• WEEKLY CHART: This chart previously found strong resistance from the 61.8% recovery level. Latest weakness, reinforced by the support line break, at least postpones any attempt higher –we currently don’t know whether this is a temporary pullback phase or if the 87.11 lows are at serious risk.
• DAILY CHART: We must respect the bears after last week’s break below key 94.00/93.82 support. But we are reluctant to give a name to the apparent top formation as its importance is uncertain. In Tue’s FX Trading Guide we noted s/term support could be seen from the bear channel base projection so this week’s rebound is no surprise. It enabled us to establish theoretical shorts in a suggested 93.80/94.00 area, initial stops at 95.25 and targeting 92.00 for partial profits. First resistance is now offered by the 94.86 23-Jun low and ideally this will hold. A stronger recovery through 96.99 01-Jul high would negate the bear view. Meanwhile, channel base support notwithstanding, the bears have a sporting chance of seeing a move lower to the 90.50 76.4% area. There are also two Fibo projections quite near to this, although we reserve judgment as to how effective these are in USD/JPY.

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Sugar Strength May Be Sapping

The Commodity Trader’s view - Sugar is one of the Softs that has been performing very well over the last few weeks. However, certain bull targets have been reached/exceeded and we are looking closer now for a pullback phase.

• MONTHLY CHART – CONTINUATION: After a prolonged triangular consolidation on the continuation chart the bull break worked well (unlike a recent one in Cocoa). Our 76.4% target was reached/ exceeded, and there is now scope for a pullback phase.
• DAILY CHART – Oct-09:: The recent upleg off 15.61 17-Jun low almost reached our Fibo projection at 18.20. This projection is related to the fact that the current 38.2% pullback virtually coincides with this low. There is a chance that this represents a final blow-off move ahead of a corrective phase – the market may need some more time however before this gets properly underway. Note also a possible negative RSI divergence. The 16.91 01-Jun high has been s/term supportive – breaks of this and the 16.52 23.6% pullback level would be negative signs. Just the chance nearby 16.17 Jul-08 high will be temporarily supportive but of more interest would be the lower 15.61/55 38.2% area. It is uncertain how bearish one should get here but this at least warns off eager buyers for now. Sell strategies will accordingly not be greedy initially.

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Bull Signal in Dollar/Rand

The FX Trader’s view - In Tuesday’s FX Trading Guide we noted several bullish clues in the USD/ZAR chart. We had switched from a Bearish to Sidelined stance and now, following the gains seen this week, we are able to Go Bullish.

• WEEKLY CHART: On this chart we have been keeping an eye on the 76.4% retracement of the 2007/2008 upmove. So far it is providing support.
• DAILY CHART: As well as the 76.4% level (Weekly chart) we had marked in a Fibo projection at 7.6000 several weeks ago. Note the positive RSI divergence and, equally important, the chart structure of the last two months which has the classic look of a mature stage. The recent close above the s/term falling resistance line has given an initial bull sign/ trigger. The initial upside target is the 8.7788 15-May high – we will look at retracement levels in next week’s Guide – there are enough lines on this chart for now.
• Buyers on dips into the 7.9500/7.9000 area will likely favour initial stops just below the 7.6200 01-Jul low, seeking partial profits around 8.3400/8.3500 then raising stops to cost.
• Our Recent EUR/GBP Update: Last Thursday’s Update favoured a s/term recovery in this cross, and we still look for this. Later that day the suggested 0.8535/15 buy area was reached. Longs continue to target 0.8800 for partial profits, but we already favour stops rising to 0.8499 to minimize loss now. Note how well s/term resistance from the 0.8636/55 area has worked so far this week.

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How far can the S&P slide?

The Technical Trader’s view:

WEEKLY CHART

The full drama of the sell- off is clear. And the double attempt to break down through the 767 pivot that failed which establishes a massive support beneath the market even though there is no clear Bottom formation beneath the market – yet now look closely at the rally. We can’t help but note that if the market can find support and push back up through the diagonal joining the two highs then a massive Reversal is in prospect. But, for the moment, that is conjecture. The recent pull-back has excited the bears yet the Prior High at 872 looks important...

DAILY CHART

This day chart has a neat Head and shoulders Reversal in place. Note the minimum move implied is as far as the Pivotal low at 820 and coincides with a fib extension. But the bulls (which we remain in the medium-term) will note the importance of the horizontal support from the prior High at 866 (the equivalent continuation support is close at 872). That has yet to break. Anxious bears should wait for a break down through 866 before getting short - or, alternatively, use a rally back to set shorts close to the Neckline with Stops just above.

The Macro Trader’s view:

A solid rally which began in March and extended into June suddenly halted, and over recent weeks has corrected lower. Hopes that a stronger-than-expected June non-farm payroll report was a sign of economic recovery, gave way, to fears the Fed would tighten interest rates sooner than expected as the month progressed.

Thereafter, traders began searching for any evidence that would support their anxiety that the tentative recovery signs were no more than a false dawn rather than the start of a long march out of recession

But where is the evidence for the recent rush of pessimism?

Ok, July’s non-farm payroll was worse than expected, but the trend is clearly improving. But until the June report, payrolls had been declining at a rate of 550K – 640K per month and there is a clear deceleration over the last two months of job destruction.

Additionally, the two ISM surveys, though still below the crucial 50 level, continue to improve with the non-manufacturing survey released on Monday standing at 47.0.

In the housing market data has yet to turn, so far only pending home sales are up, where as new and existing home sales continue to decline.

So in essence the economy hasn’t lapsed back into recession, it continues to emerge from it even if a return to growth hasn’t yet actually begun. That leaves the S&P balanced on a knife edge.

As Q2 earnings data is released over the coming weeks, market direction will be dictated by the strength or otherwise of corporate profitability and with Q2 GDP due out also this month, traders may receive a clear directional steer.

We judge the jury is out as far as stocks are concerned. We continue to expect the US economy to emerge from recession during the course of this year and start growing again late Q4 2009, or early Q1 2010. As soon as traders feel convinced of that scenario, stocks could shake off their current hesitancy and resume the rally, but much depends short/medium term on the upcoming earnings reporting season.

Mark Sturdy, John Lewis
Seven Days Ahead

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Copper Bears Taking Control

The Commodity Trader’s view - 2009 has seen a good recovery in High Grade Copper, following the serious losses of the previous year. Interesting resistance on the long term chart was recently reached, and we were on the lookout for a pullback phase – it’s underway now.

• WEEKLY CHART – CONTINUATION: Recovery from the 1.2475 Dec-08 low recently encountered dual resistance from the 2.3850 2007 low and 38.2% recovery level. A pullback from here is not a surprise. The structure of the 2009 recovery had looked mature to us too.
• DAILY CHART – Sep-09:: Note that earlier support from the small bull channel base was broken on a closing basis on Wed – this follows effective resistance from the small 76.4% bounce level at 2.3830. Bears initially target the 2.0170 38.2% pullback area. In the event of a deeper correction we are inclined to focus on the 1.7415 61.8% area next. We regard weakness as temporary for now.
• In Monday’s Commodity Trading Guide we suggested aggressive sales (entry assumed within 2.26/31 area), initial stops at 2.4000. We target towards 2.0200 for partial profits, then lowering stops to at least cost.

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What’s happening in oil?

The Macro Trader’s view:

The rally in oil from the beginning of the year always looked to us to be driven by speculation rather than fundamentals. In an environment where the global economy was still struggling to emerge from recession and supply was still plentiful, a rally of around $25 a barrel in two months seemed excessive. We argued that traders were pricing in a recovery that had yet to materialise. It was in fact partly driven by memories of the last rally that saw oil peak at $145.00 a barrel before the financial crisis and recession hit. We accept that once the global economy is truly in recovery mode long-term oil prices will rise, and the previous high may well be retested once the leading economies, including China and India are operating closer to full capacity. But that isn’t a scenario that is likely to emerge for some little while.

Currently the Euro zone looks in the grip of recession, with data only starting to look mixed at best, indeed in recent weeks industrial new orders have worsened. In the UK the economy does seem to be closer to recovery and although Q1 GDP reversed going weaker earlier this week, that number is largely now historic. In the months since the data has improved and crucially the PMI Services report has moved back above 50. But the UK on its own will not move the oil price.

The US economy, the world’s largest energy consumer, is also showing signs of emerging from recession, but unemployment is still rising and as yet both ISM surveys, while improving, remain below 50.

And while optimism has picked up in Japan, as industrial production rose this week for the 3rd month running and the World Bank recently increased its growth forecast for China, the IEA has also recently lowered its estimate for oil demand for this year.

So, on balance, the leading economies appear to be over the worst, but the Fed and the Bank of England are sending out warnings that recovery will take time, due to the recession having its roots in a financial crisis rather than as a result of a straight forward demand deficiency. So while interest rates look set to remain at current very low levels for a further period to help promote growth, which should also help support equities, we judge the oil market is due a deeper correction to bring it back in line with the current economic reality, and may well divorce itself from the price action in equities as we move forward.

The Technical Trader’s view:

WEEKLY CONTINUATION CHART

The market has bounced off the band of Prior High Support in a very convincing fashion. The Minimum move for the Double Bottom was just beneath $70. Where we are now. And there the market has paused.

DAILY Aug 09 CHART

This is possibly a Head and Shoulders reversal, notably different in any case to the continuation chart. The Neckline does seem to influence the market - see how the price action has bounced off the Neckline. But the crux of the matter surrounds the status of the present sideways price action. Look closer still.

DAILY Aug 09 CHART

A break of the low at $66.37 would be very critical for the market by creating good overhead resistance. Watch that level closely. Equally, a push up through the prior High at $73.9 would get the bulls going.

Mark Sturdy, John Lewis
Seven Days Ahead

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Temporary Bounce in EUR/GBP Now Possible

The FX Trader’s view - A few weeks ago a long term 38.2% support in EUR/GBP was violated, adding weight to the medium term bearish argument that we have been favouring. However, without this view being threatened, there is a decent chance for a shorter term bounce, subject to a certain resistance yielding.

• WEEKLY CHART: Breaks of both the 0.8636 Feb low and 0.8555 38.2% level have helped the bears’ cause. Next main support here starts at the 0.8186 Sep-08 high, through 0.8168 50% level and down to a 1.618 swing projection (off prior 0.8636-0.9490 upleg) around 0.8108. But, note how temporary support has emerged from the old rising resistance/ return line.
• DAILY CHART: As well as the nearby rising return line there was also a Fibo projection just above 0.8400, which may have helped to give bears pause. In the FX Trading Guide we have said that a close above the 0.8636/55 area (10-Feb low and 23.6%) would be s/term bullish (this has provided effective s/term resistance earlier today). We would at least target the 0.8815 38.2% level and, at this stage, would probably not look beyond the higher 0.8945 50%.
• An assessment of the relative strengths of EUR and GBP should take into account the Almost-Key Reversal Day seen in Cable on 30-Jun, which we view as a fresh bear sign, a possible blow-off move prior to a more concerted bear attempt…In EUR/GBP the bears would win out on a break below the 0.8397 22-Jun low.
• High risk, pre-emptive buys on dips could favour the 0.8535-15 area, stops just below 0.8397, targeting 0.8800 for partial profits, stops then rising to cost. We are reluctant to trades breaks as these provide the least favourable entry level, so after a close above 0.8636/55, buyers may favour waiting for a suitable dip, to be later discussed in upcoming FX Trading Guides.
• Note for FX Trading Guide Subscribers: As suggested in this week’s Guide we maintained a bear view in GBP/USD in the absence of a close above the 1.6661 03-Jun high. This was, as mentioned above, supported by a near key reversal day on 30-Jun. Any sellers on rallies may favour the low end of a 50%-61.8% rebound from whatever low at the time (currently 1.6535-85), generous initial stops just above 1.6744 30-Jun high, or less generously above the 76.4% level (1.6645/50 currently).Target towards 1.6000 for partial profits. In EUR/USD we had tweaked our short stops to just above a 76.4% level, to 1.4205. A subsequent bounce came within a whisker of this but, hopefully, short positions remain intact.

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CRB Index Pullback Now Underway

The Commodity Trader’s view - The recovery in the CRB Index from a late Feb low reached our first objective on 11th Jun, the 23.6% recovery level. We were ready to see a pause in the uptrend here, and this has happened, with a corrective phase now in process.

• WEEKLY CHART – CONTINUATION: After a low of 200.16 a recovery got underway. Our first target on this chart was the 23.6% 264.78 retracement – and this was recently reached, providing effective resistance too. Later on, note higher resistance from the significant 284.61 Jan-07 low.
• DAILY CHART: An initial slip back found support just above the 244.31 06-Jan high – this plus the 240.95 38.2% level offers the first area of support. But we think there is a good chance of this coming under better pressure. Better support could emerge from the 229.62-225.40 area, 24-Mar high and 61.8%. Note how the 76.4% level nicely coincides with the platform base from which the Index took off in late Apr. A coincidence? – No. Please compare with prior Crude Oil and US Dollar Index Updates.

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