Yen Has Fallen Off Cliff

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Wal-Mart Stores Inc.  forecast earnings that missed estimates and lawmakers prepared for budget talks, which seems to be putting a damper on any major bullish activity on the ES equities markets. Furthermore, the “Philly Fed” manufacturing index came out this morning well below estimates – the actual # was -10.7 vs an estimate of +5.7. As much as the bulls want the stock market futures to rally, we would be surprised to see a strong rally before the fiscal cliff negotiations are complete. We anticipate a range of 1350-1375 for the emini DEC12 SP for the short to medium term. Even after one of the major fundamental factors the market was waiting for (election) is now clear, things do not seem to be getting any calmer on the global political stage, with Israel striking Gaza just yesterday. There was certainly some “housing recovery euphoria” building in the markets before the election, but now that has dampened and been clearly trumped by the focus on getting our overall economy through potential automatic tax increases and spending cuts.

Big movers in the commodity futures complex today include Gold (-1.02%), Silver (-1.37%), Coffee (-1.32%), and Oats (-.146%). While gold futures are hovering near their key $1700 level, we still believe that over the longer term, gold will rise and approach the $2,000 level. However, in the short term, gold may be affected by a recent report from the World Gold Council showing that global gold demand dropped 11 percent in the three months to September from record levels seen in the same period last year.

We focus on the Japanese Yen futures market. The head of Japan’s main opposition party called for a move towards negative interest rates, thus causing further selling of an already weakened Yen. Technically, we view the Yen as in a very bearish technical environment. It is well below is multi-month downward trendline, and has more recently broken below its bullish support trendline which started in June. Now, the Yen is in a technical as well as fundamental bearish environment.  We see a major resistance level at 1.25 and a longer term downside target at 1.20.  The next key support level could be 1.22, but we don’t view this as a potential bottom. Remember, the trend is your friend.

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