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FirstAlert(tm) Daily 5/3/10: Stocks Sell-off Triggers AUD USD Break

- Morning Forex Commentary -

May 3, 2010 (FinancialWire) (Investrend Information Syndicate) (Via Brewer Futures Group) — Friday trading ended with the ProShares Ultra Gold ETF (NYSE: UGL) closing at $50.68 per share on volume of 189,200 shares, compared to the previous day’s close of $49.73 on volume of 113,500 shares; the SPDR Gold Trust (NYSE: GLD) closed at $115.36 per share Friday on volume of 13,403,100 shares, compared to the previous day’s close of $114.28 on volume of 10,374,300 shares; the Market Vectors Agribusiness ETF (NYSE: MOO) closed at $42.69 per share Friday on volume of 239,900 shares, compared to the previous day’s close of $43.26 on volume of 1,026,800 shares; and the iPath Goldman Sachs Crude Oil ETF (NYSE: OIL) closed at $27.29 per share Friday on volume of 333,100 shares, compared to the previous day’s close of $27.08 on volume of 491,600 shares.

FinancialWire(tm) contributor, Brewer Futures Group, provides some related perspective and insight regarding the outlook for the commodities markets:

A hard break in U.S. equity markets Friday helped to weaken the AUD USD. After testing a downtrending Gann angle at .9317 early in the session, the Aussie began to weaken when stock indices failed to follow-through to the upside. The Aussie was boosted overnight on increased appetite for risk and the possibility of an interest rate hike by the Reserve Bank of Australia at its next meeting on May 4th. Since reaching a four-week low earlier in the week at .9135, the Australian Dollar has gone on a tear, retracing in two-days a break which took eleven days to form. Earlier in the month, prospects for a May interest rate hike were diminished following a report stating that mortgage approvals had declined. This led traders to believe that the RBA would skip an interest rate hike at its next session. The subsequent break from the high at .9387 was a further indication that a bearish pall was being cast on the Aussie. After the top was formed on April 12th, the market proceeded to zig-zag its way down to .9135 on April 27th. Although the initial move was triggered by the weak mortgage approvals report, the final low was set-up by risk fears during the height of the Greek fiscal crisis.

The recent bottom at .9135 was fueled by a report that inflation had doubled during the lastquarter. This reignited thoughts that the RBA would have to hike interest rates once again in order to combat the effects of high inflation.

On Thursday, the AUD USD tested the retracement zone of the .9387 to .9135 range at .9261 to .9291. After a slight penetration of this zone overnight, the Aussie met resistance at a slowmoving downtrending Gann angle at .9317. This angle has held on two previous attempts to breakout above it to the upside.

Lower demand for higher risk assets combined with selling pressure following the test of resistance put pressure on the Aussie. The daily chart indicates the formation of a minor closing price reversal top which should put additional pressure on the Aussie early next week. If sentiment shifts away from risk next week, then it really isn’t going to matter what the RBA does. Downside pressure will resume on the Aussie.

Despite signs of a bottom on the daily chart, the Euro finished lower for the week. The daily chart is reflecting a short-covering rally; the weekly chart is indicating that investors still lack the conviction to turn the Euro into a buy.

On Friday the EUR USD closed up but well off its high. Although the EU feels that a bailout agreement with Greece will be reached this week-end. Some traders feel that there is too much risk to hold a long position until Monday. Most traders feel that more downside risk exists in the Euro because of lingering problems in the Euro Zone with Spain, Portugal and Ireland.

After an initial surge to the upside overnight, the GBP USD broke from its high. Traders were buying in response to the strong showing at the debate by the Conservative Party. Some traders felt that the emergence of a leader less than a week before the May 6th election would reduce the possibility of a hung parliament.

The British Pound began to weaken following the release of the U.S. GDP report. Although this report showed the economy had expanded by 3.2%, it fell short of the expected retracement of 3.3%. For the week, the British Pound closed lower while changing the trend to down. Expectations are for this market to sell-off into the election with 1.5078 the next potential downside target.

Another victim of the drop in appetite for higher risk assets was the Canadian Dollar. Friday’s rally in the USD CAD was triggered by Thursday’s comments from the Bank of Canada’s Mark Carney. In what is amounting to a “verbal intervention”, Carney said that the high priced currency could have an impact on inflation and monetary policy. The USD CAD stopped going down on his commentary, indicating that the BoC may be in the market attempting to curtail the Canadian Dollar’s advance.

Technically, the USD CAD is threatening to breakout to the upside. Downtrending Gann angle resistance at 1.0177 was tested on Friday. This angle can easily be taken out on the Monday’s opening. A breakout over this angle is likely to trigger an acceleration to the last main top at 1.0215. A move through this price changes the main trend to up on the daily chart.

The USD CHF closed higher for the week after a breakout to a 10-week high. The close back below the former top at 1.0897 was triggered by the turnaround in the Euro. Swiss National Bank President Phillip Hildebrand said that Europe must find a quick settlement to Greek financial problems in order to return stability to the region. He also said “Switzerland has enormously benefited from currency stability over the past decade. It’s obvious that a threat to this stability would pose big risks.”

Hildebrand’s comments signal that the SNB remains poised to continue to intervene by selling Swiss Francs in order to defend its currency’s stability and to protect the country’s export market. This means continue to buy the USD CHF on Euro weakness.

The USD JPY closed flat for the week but lower on Friday. After an early attempt to breakout to the upside failed, the Dollar/Yen sold off sharply as the stock market deteriorated. The weak close in this pair indicates that further downside pressure is likely with 93.08 the target. Watch for weakness early next week especially since the U.S. equity markets posted major weekly closing price reversal tops. Traders are ignoring the weak Japanese economy and turning theirfocus on an increase in demand for lower yielding assets.

The NZD USD finished the week sharply higher despite a profit-taking break from its high on Friday. Although the Reserve Bank of New Zealand voted to leave interest rates unchanged this week, most traders believe the central bank is getting ready to begin increasing interest rates sooner than expected. In addition, it looks as if traders began reversing long Australian Dollar/short New Zealand Dollar spread. The interest rate differential played a role in this week rally also. With the Fed stating that interest rates would remain low for “an extended period” and the RBNZ hinting that rates would rise, traders began to take advantage of the high rates in New Zealand. This week’s action indicates that investors believe the RBNZ will begin raising interest rates before the Fed.

Source: Courtesy of Brewer Investment Group, LLC; For more information, content and/or a preferred introduction to Brewer Investment Group, LLC and/or Brewer Futures Group, LLC, contact Investrend Communications via resources@investrend.com with “Brewer” in the subject line.  (See below for Brewer’s disclaimer*.)

The FirstAlert(tm) “Money Index” is an indicator of the depth of market direction or indirection. While not always including the same stocks, the NYSE/AMEX/NASDAQ 25 Most Actives and NYSE/NASDAQ/AMEX Greatest Percentage Losers and Percentage Winners (weighted against pure monetary loss/gain) indicate the direction in which the mass of money is flowing, as well as the general focus of the market. See the FinancialWire(tm) reference section (at http://www.financialwire.net/2010/05/03/fa-index-11/) for today’s Money Index Synopsis. Go to http://www.financialwire.net/?s=%22%27Money+Index%27+Synopsis for all the most recent FirstAlert(tm) “Money Index” Synopses.

The FirstAlert(tm) Economics Calendar lists Construction Spending for March (10 am ET); ISM Index for April (10 am ET); Treasury auctions 3&6-month bills (11:30 am ET); Auto Sales for April.

The FirstAlert(tm) Events Calendar showcases AGAM, AMSG, JAZZ, MDRX at the Deutsche Bank Securities Health Care Conference; BTE at the Raymond James New York Oil Conference; CGEN at the Biotechnology Industry Organization Bio International Convention; HOMB, TCB, WTFC, ZION at the RBC Capital Markets Financial Institutions Conference; RDWR Analyst Day.

FirstAlert(tm) Website of the Day: http://www.chow.com/

Quote of the Day: "It is the nature of men to be bound by the benefits they confer as much as by those they receive." –Niccolo Macchiavelli (05/03/1469 – 06/21/1527), Italian writer (“The Prince”).

Today is: Paranormal Day

Happy Birthday: 1980 – Marcel Vigneron, American chef (“Top Chef”).

Today in History: 1951 – The Kentucky Derby is televised for the first time.

[FirstAlert(tm) was created by Gayle Essary, founder of Investrend Communications, Inc., parent of Investrend Information. The opinions expressed in FirstAlert(tm) do not necessarily reflect the opinions of Investrend.]

*DISCLAIMER: Forex (off-exchange foreign currency futures and options or FX) trading involves substantial risk of loss and is not suitable for every investor. The value of currencies may fluctuate and investors may lose all or more than their original investments. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a currency. The impact of seasonal and geopolitical events is already factored into market prices. Prices in the underlying cash or physical markets do not necessarily move in tandem with futures and options prices. The leveraged nature of FX trading means that any market movement will have an equally proportional effect on your deposited funds and such may work against you as well as for you. In no event should the content of this correspondence be construed as an express or implied promise or guarantee from Brewer FX, LLC and Brewer Investment Group, LLC or its subsidiaries and/or affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Loss-limiting strategies such as stop loss orders may not be effective because market conditions may make it impossible to execute such orders. Likewise, strategies using combinations of positions such as “spread” or “straddle” trades may be just as risky as simple long and short positions. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

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