Brent Crude looks vulnerable on the weekly charts...

Both the major crude oil contracts are trading higher today despite the lack of any significant data from Asia or Europe, and the stronger dollar. Today’s gains therefore appear to be almost entirely driven by supply factors after Libya’s el-Feel oilfield was shut yesterday, resulting in a drop of 150 thousand barrels of crude output. Most of the country’s oil ports, including El Sharara, which has an output capacity of about 340,000 bpd, have been shut due to the on-going protests from the rebels. As well as Libya, there are concerns about future demand for Russian oil as their involvement in Ukraine has led to retaliatory response from the EU which along with Ukraine have agreed to reduce their energy dependence from the former Soviet Union. Meanwhile the rallying copper prices in response to the diminishing Chinese demand concerns, is also helping boost the sentiment.

Last week, Brent managed to hold above a long-term bullish trend line which came in just below the $105.50 mark. As a result, financial speculators may have abandoned some of their bearish positions in the London-based contract. However the upside has so far been fairly limited, in part due to the sheer number of resistance levels seen ahead which may have discouraged some of the bullish speculators from entering the market for now. The $107.50 level, for example, has already been tested unsuccessfully twice in as many days. Even if $107.50 is broken, more resistance is seen around the 50 and 200 day moving averages of approx. $108.00 and $108.50, respectively. Some traders may therefore be waiting on the side-lines until either some or all of these resistance levels are broken before joining the bulls, or the join bears if the key $105.40 support is taken out.

Yesterday saw WTI crude oil manage to hold its own above the 50-day moving average support of $99.30 after initially running into resistance at $100.25 – a level which was formerly support. The US oil contract is again pushing towards that high today, with a potential test of the 200-day average at $100.40 also looking increasingly likely. However, even if it breaks above the 200-day average, the upside could potentially be capped by the $100.70-$101.00 resistance range, which was previously support.  Meanwhile if WTI starts to head lower once again and potentially close the session below the 50-day moving average ($99.25), then we could well see another leg lower in the price of US oil over the coming days.

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The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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EURCAD Momentum trade

Aus/Nzd perfect Swing set up

A ‘text book’ perfect swing trade occurred on the audnzd daily chart at the close of last weeks trading. A old support level acting as new resistance, lining up nicely with the mean value created the perfect hot spot for shorting. The rejection candle setup seen prices weaken quite aggressively into a critical monthly support level.
This is a good area for sellers to consider liquidating their short positions as the market is now testing monthly lows. These prices have been respected as the market floor for the last decade. Right now we’re watching for strong bullish price action signals to manifest themselves here to confirm buying pressure and confirmation of a potential long setup.
Be cautious of bearish traps if the market does dive below the level, it could very well be classic price trap

Is China losing control?

The concerns surrounding China at present are double-pronged.

The issue of the build-up of mis-directed and excessive lending over recent years had never been far from the headlines. But there is also the real economy issue, namely to what degree the economy is slowing and how manageable this slowdown is for the authorities. The data releases overnight have brought more concerns on the second front, with industrial productions and retail sales both falling short of expectations. There was a notable impact on FX, with the yen proving to be the main beneficiary and allowing USDJPY to move lower for a third consecutive session.

The dollar weakness was also helped by stronger than expected labour market data in Australia, powering the Aussie back above the 0.90 level. For China, the question is whether the authorities are in control of the slowdown, or if it starts controlling them.

As the consequences of excess lending start to feed through, the risks of the latter scenario increase. The Chinese Premier was sounding more flexible on the 7.5% growth target overnight, stressing that it is ‘about’ 7.5%. Such comments have increased the perception that the authorities are more concerned and preparing the ground for growth to fall short of expectations.

The other standout in overnight trade had been the single currency. Yesterday’s move above the 1.39 level initially came after comments from German finance minister Schaeuble, but found further support in overnight developments. As we mentioned earlier this week, there are relatively solid signs that China is diversifying currency reserves away from dollars and the single currency is benefitting from this. The 1.40 level is now looking within sights.

USD/JPY Market technicals

USD/JPY Technical Analysis

USD/JPY started the week at 102.51, just above support at 102.50 . The pair touched a high of 102.70 and then lost strength, dropping to a low of 101.51. USD/JPY closed the week at 101.78.

Technical lines from top to bottom

We start with resistance at 108.38. This line has remained intact since September 2008. At that time, USD/JPY was in a downward spiral which saw it drop below the 0.90 level.

106.66 has held firm since November 2008.  This is followed by resistance at 105.70 which continues to provide strong resistance.

104.65 saw a lot of action in December and January when the yen was trading at higher levels.

The round number of 104 follows. This was a key line back in May 2008 and is providing strong resistance.

102.50 continues to see activity. It is not a strong line and could face pressure early in the week.

101.44 was the post-crisis high seen in April 2009, and is the first line of support.

100.85 saw activity in July as the dollar showed strength against the yen. It is protecting the key level of 100.

The round number of 100 is a key psychological level. It is providing USD/JPY with steady support.

98.80 has remained firm since early November, when the dollar began a rally which saw it climb above the 105 line.

The final support level for now is 97.75. This line marked the start of a dollar rally in October, which saw the pair break above the 105 line.

I am neutral on USD/JPY

Japanese economic numbers have been steady and inflation continues to rise, albeit slowly. A strong GDP number early in the week could give a boost to the yen. In the US, employment numbers remain a concern, but the markets are content with the general direction of the US economy.

Eur/usd Update

EUR/USD has edged lower on Tuesday, as the pair trades in the mid-1.36 range in the European session. In economic news, German Import Prices looked weak, coming in at a flat 0.0% in December. As well, EU financial ministers will get together for their monthly meeting. In the US, there are two key events – Core Durable Goods Orders and CB Consumer Confidence.
Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.
EUR/USD Technical

• EUR/USD was steady in the Asian session, hovering close to the 1.3670 line. The pair has lost ground early in the European session.

Current range: 1.3580 to 1.3650.
Further levels in both directions: 

• Below: 1.3580, 1.3515, 1.3450, 1.34, 1.3320, 1.3240, 1.3175 and 1.31.
• Above: 1.3650, 1.37, 1.3800, 1.3832 and 1.3940.
• 1.3580 is the next support level. 1.3515 is stronger.
• 1.3650 is weak resistance. The round number of 1.37 follows.

EUR/USD Fundamentals

• 7:00 German Import Prices. exp. 0.3%, actual 0.0%.
• All Day – ECOFIN Meetings.
• 13:30 US Core Durable Goods Orders. exp. 0.7%.
• 13:30 US Durable Goods Orders. exp. 1.9%.
• 14:00 US S&P/CS Composite-20 HPI. exp. 13.7%.
• 15:00 US CB Consumer Confidence. exp. 78.3 points.
• 15:00 US Richmond Manufacturing Index. exp. 13 points.

*All times are GMT

EUR/USD Sentiment

• German Business Confidence Improves: The week started on the right foot for Eurozone data, as German Ifo Business Climate, a key event, continues to improve. The indicator topped the 110 level, posting a reading of 110.6 points, up from 109.5 last month. This edged above the estimate of 110.2 points. Germany is the Eurozone’s largest economy, and the region will need the German locomotive to lead the way to an economic recovery.
• US Housing Numbers Slide: The US housing sector is showing some weakness. New Home Sales dropped sharply in December to 414 thousand, down from 464 thousand a month earlier. This was nowhere near the estimate of 457 thousand. This follows a disappointing Existing Home Sales release last week. The key indicator dropped to 4.87 million, down from 4.90 million a month earlier and shy of the estimate of the 4.94 million. This was the indicator’s fourth straight drop. The markets will be hoping for better news from Pending Home Sales on Thursday. A third straight housing reading below the estimate could weigh on the dollar.
• Worries about China: Jitters in Chinese money markets, as well as comments about a “severe economic situation” in the world’s No. 2 economy are worrying markets. While the impact is currently limited to commodity currencies, lower Chinese demand for German products could change the European picture one day.
• IMF warns about deflation in Eurozone: Eurozone inflation indicators continue to point to weak inflation, and the situation as deteriorated to such an extent that the IMF has voiced its concern about the danger of deflation in Europe. This was seen in a report published by the organization as well as in a speech by IMF Managing Director Christine Lagarde in Davos. While the ECB seems concerned with low inflation and not outright deflation, any further deterioration could push the ECB to set a negative deposit rate as soon as March 2014.

AUD/USD still bearish

AUDUSD: Despite its attempts at recovering higher, it continues to hold on to its broader medium term downside bias. With that said, we expect its current recovery attempts to fade at the 0.8755 level or maximum at the 0.8822 level if it does continue. 

Support lies at the 0.8659 level followed by the 0.8600 level where a breach will aim at the 0.8550 level. Further down, support is located at the 0.8500 level. Its daily RSI is bearish and pointing lower suggesting further weakness. 

On the upside, resistance resides at the 0.8755 level initially with a cut through there targeting the 0.8822/47 levels where a reversal of roles is likely to occur. But if this fails, expect more recovery to occur towards the 0.8915 level, its Jan 16’2014 high and next the 0.9000 level, its big psycho level. 

All in all, the pair remains biased to the downside in the medium term.