Weekly Analysis for the week of Monday May 16 to May 20 2011 by SolidityBrokers.com

Another week begins with intense anticipation in the forex and commodity markets. Will silver and oil bounce back from their recent collapse, or will we see another red week with tremendous market instability. Either way, we are prepared to take advantage of the rise in volatility using break-out trading strategy to be used according to our daily market projections.  Going forwards, we are predicting further correction to the impressive commodity rally of recent months. $90 oil is matter of when rather than if. Silver could see a resumption of the uptrend, although it’s likely to begin reversing again at the $40 level. In regards to the Euro, things are not as simple.

It was just a year ago that Europe bailed out Greece. A year later Germany is looking good with growth accelerating and unemployment lower than at any time since German unification. The European Central Bank is even raising interest rates to curb inflation. Things are more or less level in France and Italy, each of which recorded GDP growth of 1.5 percent in 2010, well below Germany’s 4.0 percent. But Greece is still a mess with an economy that shrank 6.6 percent, far more than the 1.9 percent decline in 2009. Greece has not managed to restore its creditworthiness and Greeks have not embraced the idea that they need to grit their collective teeth and suffer the austerity cuts for a better future.

This year’s May turmoil comes as news that the director of the International Monetary Fund — Dominique Strauss-Kahn — was arrested on sexual-assault charges in New York on Saturday and will reportedly resign as head of the IMF Sunday didn’t help investor anxiety about progress on resolving European sovereign-debt issues. Strauss-Kahn had been due to meet with euro-zone finance ministers Monday and Tuesday to discuss the European debt crisis. 

This Week’s Financial Main Events

Monday, May 16

US Economics
Empire Manufacturing 
Net Long-Term TIC Flows
NAHB Housing Market 

Global Economic Data
Japan Consumer Confidence
Euro-Zone CPI
Euro-Zone Trade Balance
Bank of Canada Press Conference 

Tuesday, May 17

US Economics
Housing Starts
Building Permits
Industrial Production
Capacity Utilization 

Global Economic Data

Reserve Bank of Australia Meeting
Great Britain CPI 
Euro-Zone ZEW Survey 
New Zeeland Producer Prices 

Wednesday, May 18

US Economics
MBA Mortgage Purchase Index
Crude Oil Inventories 

Global Economic Data
New Zealand Consumer Confidence
Australia Wage Cost 
Bank of England Minutes
Great Britain Jobless Claims
Canada Leading Indicators
Japan GDP

Thursday, May 19

US Economics

Initial Claims
Continuing Claims
Existing Home Sales
Philadelphia Fed
Leading Indicators 

Global Economic Data

Great Britain Retail Sales
ECB Press Conference
Bank of Canada on Bretton Woods

Friday, May 20

US Economics
No releases

Global Economic Data
Bank of Japan Rate Decision 
German Producer Prices
Canada CPI
Canada Retail Sales


As mentioned in the fundamental analysis, fears grow that Greece could default on its debt next year without more help. The euro’s drop, just a week after it hit a 17-month high versus the dollar above $1.49, accelerated after steep losses in stocks and commodities led to a stampede for the safe-haven dollar. Speculation over whether Greece will receive more bailout funding kept risk appetite volatile with investors pricing in the possibility that the Hellenic Republic will eventually need to restructure its debt. Even though it may appear that support and resistance lines have been broken in the currency markets, such is not the case. The USD did rally slightly but is tied to the Euro Index which has not invalidated its previous breakout. The key factor here is that the very long-term Euro chart is still bullish. Traders should try to capitalize on the expected technical correction this week.

Stop Loss: 1.4045

Take Profit: 1.4498





Since gold is positively correlated with the euro, a short-term rally in the yellow metal is quite possible (this takes into account the intraday decline seen on Friday). This would be very much in tune with the seasonal tendencies present on the dollar market. We believe peripheral issues such as Strauss-Kahn fiasco are unlikely to have any fundamental impact on the gold market, given the underlying balances remain constructive. That being said, external issues may continue to impact sentiment in the short term, keeping prices volatile, but the overall trend in prices should be higher. There is local support at 1522.36, where a correction may happen. Break of that level would lead to 1566.20. Continuation would bring 1575.00.

Stop Loss: 1,484

Take Profit: 1,538




Crude Oil

On Friday, crude oil moved strongly higher, and assessing the movement over the past days, we can see that the sharp movement is merely normal now. Fundamentally, the supply side is showing signs of overproduction as Iraq’s failure to reach output goals hits hopes of lower global oil process. Technically, there is stability below $100.40 with daily closing keeps our morning expectations valid and we can see Stochastic attempting to crossover negatively supporting our expectations. The trading range for today is among the major support at $92.00 and the major resistance at $102.20 a barrel. The short term trend is to the downside with steady daily closing below $99.75 targeting $92.40 by the end of the week.

Stop Loss: 104.46

Take Profit: 92.40



Published by www.SolidityBrokers.com