Bulls in EUR/JPY Remain a Driving Force

The FX Specialist view - Long term support in EUR/JPY remains around a 76.4% pullback level (recently retested), and a better recovery is still a prospect following the recent brief sell-off.

• MONTHLY CHART The 76.4% pullback level is still providing good support. The first recovery level of note here is the 118.32 38.2% retracement of the drop from 139.21 Jun-09 high.
• DAILY CHART: In the FX Specialist Guide we have already said that following the recent sharp sell-off and rapid recovery (which represented clear low price rejection) the chart remains well-placed to continue its recovery. Recent breach of the 115.98 04-Mar high provides useful confirmation of this. Already, potential resistance from a bull channel top projection at 117.50 has been eroded today. The next, near upside focus is that 38.2% level from the Weekly chart, but also keep in mind potential resistance from the 119.32/119.63 area, 61.8% of the Apr/Aug-10 drop and the Feb-10 low. Resistance looks likely here and warns against chasing the market up there.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

Sidelined Natural Gas Bulls Await Clear Signals

The Commodity Specialist view - A correction in Natural Gas prices earlier this year has kept bulls’ hopes in check. We currently wait to see if nearby key resistance levels can be breached, which would provide an initial green light.

• NATURAL GAS – WEEKLY CONTINUATION CHART: Note that this year’s correction on the continuation chart held above the 2010 low. If the recovery gets going again then note possible resistance from the 76.4% 5.425 retracement. Further out we would target the 38.2% recovery level at 6.720 plus equality target just above at 6.910.
• NATURAL GAS - DAILY CHART MAY-11: After brief violation of the Oct-10 low a Mar recovery has found initial resistance from the 76.4% bounce level. This marks the beginning of a key resistance area, which also comprises the falling resistance line at 4.640 and channel top projection at 4.780. A break through these would be a clear bull sign for us. First support is offered by the 4.171 28-Feb high now.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

The S&P is showing great resilience but has it true bull legs?

The recent sell-off in the S&P and other leading equity markets in reaction to the earthquake/natural disaster in Japan and fighting in Libya, appears to have run its course, since the S&P has rejected the recent lows. Why is that, and can the rally be sustained?

The Technical Trader’s view:

WEEKLY CHART

The big picture is interesting: the impetus from the Head and Shoulders Reversal has been exhausted.

Though the market has pulled back from the Fib resistance at 1347, it has yet been (so far) lacking in bear energy to retrace as far as the Prior High at 1216.70.

(NB the coincident cluster of Fibonacci supports at that level)..

Look closer.

DAILY CHART

The market’s resilience has been impressive given the background of events.

The rally from the middle of last week has overcome the first test of the resistance a the Prior Low resistance at 1290.

The next test (a lesser one) is the falling bear trendline resistance above the market (1304 today).

Cautious bulls will note the steeply falling volumes on the rally, and want to wait for a move back the 1337.50 Prior High before becoming convinced.

The Macro Trader’s view:

The recent sell-off in the S&P and other leading equity markets in reaction to the earthquake/natural disaster in Japan and fighting in Libya, appears to have run its course, since the S&P has rejected the recent lows.

The feared nuclear catastrophe in Japan hasn’t yet materialised. That is despite

· the struggle to bring the badly damaged nuclear generating plant at Fukushima under control.

· drinking water in Tokyo being declared unsafe for infants to drink due to radiation contamination

· the logistical nightmare of keeping a city the size of Tokyo supplied with bottled drinking water

· and the continuing disruption to Japan’s economy.

Equity traders are, it seems, relieved a much worse event hasn’t occurred such as the core of one or more of the 6 reactors at the Fukushima plant melting down.

In Libya, traders seem relieved the UN authorised no fly zone has stopped Gaddhafi from attacking his own people, but it has done nothing to restore Libya’s oil exports.

So what has changed sentiment in the S&P over the last few days? Traders have refocused back onto US fundamentals. The US economy continues to improve as the Fed itself noted as much in last week’s FOMC policy statement.

But they also said policy needs to remain loose until the recovery becomes self-sustaining. Additionally, fiscal policy in the US remains expansionary. So while bond and currency traders fret that the US public finances are on an unsustainable path, leading to a massive build-up of the National debt, equity traders take the view, the slack fiscal policy will fuel the economic recovery.

What is clear is that the world economy has experienced a recession different to other post WW11 recessions, and the policy responses needed to turn activity around and restore growth, has also needed to be different.

At the same time the world has changed, and indeed is still changing. The US is no longer the unrivalled global economic power house; others are competing for that title. The main contender is China, but India and Brazil aren’t far behind.

This impacts the world economy in two main ways:

- The opportunities for trade are greatly expanded meaning greater opportunity for prosperity for more of the world’s people, but

- There is greater competition for natural resources, especially energy, namely oil and this threatens to cause inflationary problems as global activity increases.

The other area where the world is changing is in the Arab world. Here a people, for so long dominated by powerful rulers, are seeking democracy and a greater say in how their affairs are managed. While this is great news from a humanist standpoint, there is also a worry that significant amounts of the world’s oil exports could be interrupted if the protests develop along the lines of events in Libya.

So while the S&P is supported by domestic US policy, there remains a real threat of volatility from important external influences. This market looks bullish, but it is likely to suffer from repeated episodes of risk aversion.

Mark Sturdy

John Lewis

Seven Days Ahead

For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com

Recent Blow-off Move in USD/JPY?

The FX Specialist view - After some of the dust has settled since last week’s sharp, brief sell-off some initial ideas have formulated. These might begin to excite the bulls, but it is too early to draw conclusions yet.

• WEEKLY CHART The recent sharp sell-off saw a test of the projected bear channel base before recovery was seen. First main resistance here comes from the late 2009 84.81 low, and a push through this would be a bull sign.
• DAILY CHART: In the FX Specialist Guide we have wondered whether or not the sell-off amounted to a blow-off move, paving the way for a better recovery on this chart. In these situations such sell-offs seem to begin near the future 38.2% retracement level... S/term note initial resistance emerging from the area of the old rising support/return line and 23.6% level – the first positive sign would be a clear close through this, followed by further recovery through that 38.2% level.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

Cocoa Nearing Interesting Short Term Support

The Commodity Specialist view - The recent bull move in Cocoa (ICE) achieved a new multi-year high, but so far the higher levels have not been sustained. The subsequent pullback has now neared technical support which could at least prompt a s/term recovery.

• WEEKLY CONTINUATION CHART: Price has pulled smartly back after the recent push through the late 2009 high. This leaves higher resistance from the bull channel top projection out of reach for now. On this chart temporary support has come from the last Dec’s 3100 high.
• DAILY CHART - MAY-11: After a brief move through our Fibo projections the trend reversal quickly violated initial supports, but now note dual support offered by a 76.4% 3062 pullback level and falling return line just above. The RSI momentum indicator has moved into notably oversold territory, making at least a s/term recovery likely soon. Initial potential resistance is offered by the prior May-10 high area around 3300 and then the 3400 area.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

Oil underpinned despite weakness

So, while the immediate outlook for Japan's economic prospects is negative, traders will soon look beyond that if popular opinion forces governments around the world to drop nuclear power as a mainstream energy generating source.

The Technical Trader’s view:

MONTHLY CHART

The market has tried to break the 61.8% Fibonacci resistance, but so far has failed.

Look closer.

WEEKLY CHART

The fall back through the Fibonacci has been brutally fast.

Note well though the succession of support beneath the market 93.98- 94.89.

Look closer still.

DAILY CHART

The market has not yet managed to test the important support – held up as it has been by the Fibonacci support at 97.

The market looks well-support at these levels and just beneath them.

The Macro Trader’s view:

The recent rally in oil markets, driven by unrest in the Arab world, has paused in the aftermath of the Japanese natural disaster and possible and impending nuclear disaster. Traders are trying to assess the implications for energy demand as the world’s 3rd largest economy looks set to endure a recession.

An initial reaction might have been that oil prices would continue to push higher. The unrest in Libya has turned to virtual civil war, meaning that her exports of oil have dried up, and although OPEC has pledged to make good the shortfall, it is by no means clear that the unrest will not spread to other Arab oil exporting states.

Bahrain a regional financial hub and base for US forces, has had to invite in troops from neighbouring states to help suppress a popular uprising in a country that many considered more tolerant than most of her neighbours.

Moreover, as Countries around the world review their nuclear energy policies following the still evolving drama in Japan with:

- China halting further construction of nuclear plant,

- Germany closing down seven older nuclear power stations, and

- an EU energy official saying the EU should consider a nuclear free energy policy,

the longer-term outlook for oil prices must surely be higher. Although governments are looking at other “green” alternatives, nuclear energy is the only viable alternative deployable on a large scale, to oil-fired electricity generation.

So, while the immediate outlook for Japan’s economic prospects is negative, traders will soon look beyond that stage if popular opinion forces governments around the world to drop nuclear power as a main stream energy generating source.

And while the oil price currently marks time on growth fears, the longer term issue is what other means of energy generation is available to allow western governments to move away from their dependence on oil, which many believe won’t be able to match demand as emerging economies rush to join the developed world.

We judge the oil price is in a long-term bull market and new all-time highs are likely. This was our view before the crisis in Japan struck, since China and India are still growing and so too is their demand for energy, now as the world holds its breath and prays for a miracle at Japan’s stricken nuclear facilities, the current oil price may soon look cheap.

Mark Sturdy

John Lewis

Seven Days Ahead

For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com

Gains in EUR/GBP Nearing Key Resistance

The FX Specialist view - Following an earlier medium term bear signal in the EUR/GBP cross the next stage in downward development has been reluctant to get underway. While bears’ hopes are not yet threatened, shorter term focus has turned to certain overhead resistance levels.

• WEEKLY CHART We have been bearish of this chart, since prior break of support, but so far the cross has been reluctant to push lower and, initially, challenge the 76.4% support area again. An initial bull sign would come from a breach of falling resistance around 0.8770 currently. But also keep in mind a higher bear channel top projection which is a potential barrier on the upside.
• DAILY CHART: Resistance around the 0.8650 area has now been overcome, with earlier bears now sidelined. Beyond the 61.8% retracement area is the more key 76.4% 0.8785, which lies close to resistance from the Weekly chart. The bull argument would strengthen on a clear break of this. Meanwhile, bears’ confidence will not be restored until a drop back, below the 0.8353 15-Feb low, can be seen.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

Sugar Turns More Negative After 76.4% Test

The Commodity Specialist view - In our last Sugar Update we were looking at potential resistance from a long term Fibonacci level. So far the reaction around this has been negative and now there are further reasons to expect continued weakness.

• SUGAR 11 - MONTHLY CONTINUATION CHART: The bull leg that started from a 13.00 2010 low recently saw a test/erosion of the long term 76.4% recovery level. In the Commodity Specialist Guide we have been awaiting a clear reaction to this, and it has proved negative.
• SUGAR 11 - DAILY CHART MAY-11: After s/term resistance was found around an old high from Dec a fresh slip has now tested/eroded key, dual, support from the bull channel base and 38.2% 26.00 level. In the process the neckline of a Head and Shoulders has also been breached, providing an initial bear signal. Bears may be cautious about chasing the market here, noting a minor Fibo projection at 24.40, but any s/term rally should be temporary at this stage (and probably not deep), ahead of further weakness. The power should be there to extend to the 61.8% 21.60 area.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

EUR/USD Up Against Key Resistance

The FX Specialist view - Late last year a negative signal in EUR/USD was given, but the 2011 recovery has unsettled the bears. However, key resistance has now been tested, with an initial negative reaction. Could this be the turning point?

• WEEKLY CHART After last year’s 3-wave, corrective structure on the upside we have been viewing subsequent rallies as corrective/temporary too. This view would however be negated on a recovery through the 1.4281 Nov-10 high, falling resistance line and 1.4373 76.4% recovery level.
• DAILY CHART: Recent recovery here has seen a test/erosion of a 76.4% retracement, with the old rising support/return line also offering resistance. Initial reaction has been negative, and also note the negative RSI divergence now, indicating current bull fatigue. The first confirmation of momentum loss would come from a break of the s/term channel base around 1.3600. The next bear signal would be a breach of earlier support from around the 1.3433 04-Jan high.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

Carbon Emission Bulls Nearing Key Resistance

The Commodity Specialist view - EUA Carbon Emissions have been pushing upwards since a late Dec-10 low, with bulls showing little sign of tiring. However, the uptrend is closing in on a key resistance area which should hinder progress.

• WEEKLY CONTINUATION CHART: On this chart the 16.32 38.2% recovery level is the start of key resistance, which also includes the 16.73 May-10 high. A break through these would open the way to the 18.87 50% level next.
• DAILY CHART DEC-11: The structure of the current bull leg, inspired by the earlier breach of a s/term bear channel, does not yet imply fatigue, and is now closing in on the 76.4% recovery level, which previously provided resistance in Sep last year. This lies close to the long term 38.2% retracement. Also note a channel top projection around 16.60 where s/term resistance would not be a surprise. The final hurdle on the Dec-11 chart is the 17.05 May-10 high. First support comes from the 15.14 03-Feb high now and buyers on dips will likely position ahead of this.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

USD/CAD Bears Continue To Forage Deeper

The FX Specialist view - Since May last year the USD/CAD chart has been drifting lower, retesting, and initially finding, support from a 76.4% level. This failed earlier this year and the market remains on course for the next downside Fibo projection.

• WEEKLY CHART The 76.4% support level, already effective earlier in 2010, again held later that year, but has since failed. Ahead of the major 0.9056 Nov-07 low we have drawn in a Fibo projection at 0.9485, which is the next target now.
• DAILY CHART: The consolidation earlier in 2011 recently gave way to a further bear move. This has now closed in on potential support from the bear channel base projection at 0.9660 currently. Failure here would open up the lower projection on the Weekly chart. At this stage a rally/close above the 0.9958 23-Feb high would be a shorter term positive sign.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]

Soybean Upmove Halted By 76.4% Resistance

The Commodity Specialist view - In our last Soybean Update we noted key resistance on the longer term chart which has since been tested. As expected, a pullback has been prompted and initial support has been found – bears need further evidence before gaining in confidence.

• SOYBEANS - WEEKLY CONTINUATION CHART: See how the recent upmove has tested dual resistance from a bull channel top projection and 76.4% retracement level at 1453.75. Reaction here has, not surprisingly, been negative. The 1291.25 2009 high has provided s/term support, but will it hold?
• SOYBEANS - DAILY CHART MAY-11: The pullback from resistance around the 1.618 swing projection off the prior Nov setback, at 1463, has breached s/term support from the 1356.00 09-Nov high, but so far been held by the projected channel base. With important resistance seen on the Weekly continuation chart above there is a good chance that s/term strength will be temporary, ahead of further bear pressure. A subsequent break of the channel base would signal loss of momentum, inviting a challenge to the 1254.00 38.2% pullback level before focus can shift to lower targets.

[For the complete and illustrated version of this and future Updates be sure to sign up at www.sevendaysahead.com]