Daily Market Briefing

By 26 Oct 2010 0 comments

Fundamentals:

In macro data, traders will be watching the report from the Richmond Fed today.  Similar reports from the Dallas and Philadelphia Fed showed concern about inflation, with higher prices paid and lower prices received.  Inflation of this type can create severe consequences so it is becoming more clear that the Fed will need to take outside action.  In the 1970’s, problems with inflation caused excessive gaps between wages and prices paid, so the Fed will be watching this data in order to see if a similar occurrence is happening now.  Data related to these issues will probably be seen by the market as more important that Case-Shiller data and other things related to the housing market.

Markets are ignoring the potential ramifications of the possibility of criminal investigations in the banking industry and this could have something to do with the election season and the fact that politicians are distancing themselves from the issue.  Is we see more attention from the media, and people calling for investigations, politicians will find it difficult to pretend these situations don’t exist.  This story is likely to escalate in the coming weeks and if this does happen, the risk rallies that we have seen recently will be in danger.  This would be a clear negative for equity markets, oil, the British Pound and Euro.

Later, we will see consumer price data from Australia, and traders will be using this information to gauge rate hike expectations out of that country’s central bank.  But this story is likely to be overwhelmed by overall risk appetite as they relate to other markets.

Technicals:

Commodities:

Gold is trying to stabilize after its recent declines.  From the highs above 1380, we have seen lows print below 1320.  A correction of this type was not unexpected, as we rolled over from overbought territory last week.  The daily RSI is now neutral from mid levels, giving us no clear directional bias.  But given the strength of the long term uptrend, the balance of the evidence suggests that the bias is bullish.

Currencies:

The EUR/USD has bounced off of support at the 1.37 level.  We are currently seeing a very strong uptrend and moves like this usually have a hard time maintaining this level of momentum.  So, we need to start looking for clues to see when a reversal might begin.  Currently, the daily indicators are bullish, but we are above 60 so this is likely to change in the near future.  The first sign that we are seeing a move to the downside would come if we see a daily close below 1.37.  Strong resistance is seen overhead at 1.4140.

Stocks:

The S & P 500 has formed a very clear uptrend channel, testing the support and resistance lines numerous times.  Despite the steadiness of the ascent, we are approaching overbought levels on the daily indicators so a channel break here would be the first clue that the uptrend is reversing.  That said, RSI is still bullish for the longer term, so entering into selling positions at this stage is premature.  Resistance is at 1191, support comes in at 1155.

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