VeriteFX.com Daily Update Market Update  

Wednesday, February 4^th 2009

On Tuesday Wall St. once again took center stage as participants from the commodities and currencies markets were largely taking their cue based on Wall St.’s risk appetite and confidence level in the government’s ability to fix the global economic system.

The good sign for currencies like the euro and cable in addition to crude is gold is when Treasury yields drop and the Dow is able to recover itself back above the 8,000 level to close today at +148 on the day. In my view the S&P 500 futures were one of the EUR/USD’s strongest leading indicators.

I’m not a chart person but for those that are, I think if you would stack a EUR/USD chart on top of an S&P 500 chart from 2-Feb to 3-Feb you’d see why I’ve been telling traders to use the price action of the S&P 500 futures to give indication of the euro’s strength and probable market direction. I will continue to closely monitor the S&P 500 futures the rest of the trade week.

As we forecasted in yesterday’s update German Retail data printed worse than expected and Pending Home Sales printed better than expected. Wall St. enjoyed the 6.3% increase in Pending Home Sales for the month of December. I’m sure there are calls that a bottom in housing is in. I’m not even close to being ready to call a bottom in housing. I would be shocked to see this type of increase next month… I don’t believe we’ve started a trend of great housing data for the next couple of months. Home ownership remains at recessionary levels after peaking during the height of the housing boom in 2005.  

Jobs continue evaporating—

PNC Financial Services said it will cut almost 6,000 jobs after reporting another loss of $248 million. PNC is cutting almost 10% of its workforce. PNC reported they will be cutting jobs through 2011.  

Motorola took a colossal Q4 loss of $3.6 billion. For 2008 Motorola lost $4.16 billion compared to a 2007 loss of just $49 million. In a bizarre move Motorola suspended its dividend and announced their CEO was fired on Tuesday, initially sending their stock down 11%. Heavy layoffs are rumored at Motorola in the coming months.

They can add another job loss to the NFP numbers on Friday because Nancy Killefer is also out of a job. Who is Nancy Killefer? Nancy is the latest in a string of Obama nominees who lost their position because they can’t remember to pay their taxes. Nancy is another tax-evader and it’s too bad the Republicans can’t use this as firepower because they are all chronic tax-evaders too.  

Killefer was an executive with a big consulting firm named McKinsey & Co. She sent Obama a letter saying, "I had come to realize in the current environment that my personal tax issue of D.C. unemployment tax could be used to create exactly the kind of distraction and delay that must be avoided in responding to urgent economic problems.”

You think, Nancy?

General Motors is getting creative in their attempts to dramatically reduce their workforce as they realize nobody is going to buy their vehicles the next couple of months. GM is offering buyouts to every single one of its hourly employees. The buyouts will mainly target GM's 22,000 employees who are eligible for retirement but any union employee is welcomed to take the offer. GM’s offer is $20,000 in cash and a $25,000 car voucher for those who retire early or quit the company. Employees have until 24-March to decide and employees who accept the buyout will leave the company by 1-April. I would expect more automaker layoffs to continue the rest of Q1. This won’t be the last.

Here are the latest sales figures from the top automakers:

Chrysler: -55%

GM: -49%

Ford: -40%

Toyota: -32%

Nissan: -30%

Honda: -28%

Subaru: +8% (go to Colorado and you’ll see why this is possible)

Hyundai: +14%

EUR/USD:

On Wednesday I believe the Dow and S&P 500 will once again lead the way, whether we go up or down. All markets will have some fundamental data to contend with. First we get Eurozone Retail Sales which I am forecasting a lower than expected print. Although not reacted to strongly by the markets, I’ll be anxious to see the Challenger Job Cuts data.

At 0815 EST we get the worthless ADP Non-Farm Payrolls report. The only reason I’ll pay any attention to it is because Wall St. will pay attention to it as they think it’s some kind of useful indicator for Friday’s NFP. It’s not. The way the ADP data is collected compared to the way the BLS fabricates the NFP report is not even close. Comparing the two is idiotic. Wall St. will freak out about it one way or the other.

ISM Services will be key as we get a fresher gauge on how the services and entertainment sectors finished the first month of 2009. ISM could very well print under 42 again and potentially under the 40 level.

As far as the EUR/USD is concerned, I don’t like either the euro or the dollar. I can make a case for both currencies to be slaughtered in the short-term. The fake bullish run in Treasuries should be enough to crash the USD Index right now. The billions of losses coming in the European banking system, the threat to sovereign debt in the EMU, and the potential for civil unrest is enough to implode the euro right now.

It’s all a big mess.

As I mentioned to some traders today, my trade plan is to short the euro on the rises after I see that the price action indicates it’s run out of steam to keep moving up. I would caution against adding new euro shorts below the 1.2950 level for the next few hours but shorts above the 1.3030 level have paid out well so far. As of the writing of this the euro is trading at 1.2960. If a price pattern shows a good trade to buy the euro for 20 or more points, I will certainly take that as well.  

The S&P 500 futures will remain a key market correlated indicator in order to find market direction. The EUR/USD 30-minute price opening patterns will be the other key factor as those patterns will provide more probability for a trade. Gold remains correlated to the EUR/USD but it’s acting very weird. I guess there have been quite a few stops run in the gold market this week. I would expect some of those sharp price swings with gold to continue today.

If trading and market conditions allow I may be able to post EUR/USD key levels for tomorrow’s NY session. If the right level of overall market liquidity is there and the market correlated variables aren’t acting crazy this should be possible.

I would expect to see an increase of volatility around the time we get each data release in addition to when Frankfurt, London, and NY closes as market participants will be closing out positions, squaring up, and getting ready for Thursday’s ECB interest rate event.

Be careful with your risk and money management tomorrow as sharp price swings can be expected today.

-David

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