Friday’s Futures Outlook: Flight To Safety On Jakarta Explosion

Overnight events are encouraging safe-haven buying in the Forex markets in Europe. CIT bankruptcy concerns and explosions at hotels in Jakarta are sending investors to the safety of the U.S. Dollar and September Japanese Yen.

The flight-to-safety rally is also triggering weakness in emerging market equities. The developing fear mentality could spill over into the U.S. Forex and equity market openings where traders are already nervous about today’s U.S. Building Permits and Housing Starts Reports.

Major earnings reports also have investors worried as Dell (DELL), Bank of America (BAC), Citigroup (C) and General Electric (GE) are all set to report. Earnings have moved the Forex and equity markets all week as demonstrated by the increased demand for higher risk assets following bullish reports from Goldman Sachs (GS), J.P. Morgan (JPM) and Intel Corp. (INTC) earlier in the week.

Today is also an option expiration day in U.S. equity markets. This could increase volatility which may have a direct effect on trader demand for risky currencies. Weaker than expected government reports are most likely going to hurt the September British Pound and September Euro as traders will buy the Dollar on the notion that the global economy is still weakening. A sharp break in the equity markets should trigger selling pressure in the Australian and New Zealand Dollar. Weak equities and falling crude are likely to keep down side pressure on the September Canadian Dollar. If today develops into an extremely weak day in the equity markets then the big winner could be the September Japanese Yen.

Technically, the September Euro is trading at the high side of the 1.4202 to 1.3832 range and between two retracement levels inside of the 1.4327 to 1.3832 range at 1.4107 to 1.4037.

The Euro will turn bullish over the swing top at 1.4202. A break back under 1.4037 will be a sign of weakness with 1.3995 the next downside target.

Flight-to-safety buying is supporting the Japanese Yen overnight. News that the CIT Group may file for bankruptcy has been making traders nervous for two days, but explosions at hotels in Jakarta overnight encouraged traders to take protection in the Yen.

The current rally in the September Japanese Yen is coming two days after the recent break failed at 1.0591, slightly lower than the 50% retracement level at 1.0615.

The short-term chart indicates a rally to 1.0762 is likely if the equity markets put in a weak performance today. Equity markets are trading weaker before the opening. The strong rally this week may have been overdone leading to profit-taking overnight. Investors really wanted to see knockout earnings reports this morning based on the sharp rise we’ve seen this week. Anything less than spectacular could trigger a sell-off.

The strong Dollar is putting pressure on August Gold and September Silver overnight. This is likely to carry over to the New York opening. The lack of inflation has cast a long-term bearish pall on this market. The inability to even react bullishly to a terrorist attack is a sign that this sector may be poised for another leg down.

Traders are buying Treasuries for protection against a decline in equities. The buying started last night following the bombing in Jakarta. No matter how much we hear about the risk in holding U.S. debt, global investors seem to always find their way to the Treasuries during times of geopolitical uncertainty.

DISCLAIMER: Futures and options trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures and options may fluctuate, and, as a result, clients may lose more than their original investment. 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. In no event should the content of this correspondence be construed as an express or implied promise, guarantee or implication by or from Brewer Futures Group, LLC, Brewer Investment Group, LLC, or their subsidiaries and 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 options and/or futures 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 provided in this correspondence is intended solely for informational purposes and is 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.

Subscribe by RSS Subscribe by Email