Breakfast Blog

Good Morning,
                       What Italian elections? What Sequester? Well thats what the Algorithm's in the American Equity market seemed to think yesterday. The S&P 500 had its biggest one day gain since early Early January, rumours of a large Buy Program at work caused the S&P and the Dow Jones 30 to take a parabolic upmove right from the Start of the American session. Yen Crosses were strong early in the day but once the Risk came back into the play in the early afternoon they started to weaken heavily and this started to weigh on the dollar strength we have seen for the last few sessions.
EUR/USD was trapped in a tight range between 1.306 and 1.3126(100 DAY MA) for the European session but once EUR/JPY took out the 121 handle on the topside it gave the Euro a boost to go higher and broke through 1.314 tripping stops on the way up. This area around the 100 day moving average has been very well protected by Euro bears for the last couple of sessions the clean break yesterday along with normal month end demand for Euro could open up some additional topside risk if the offers around 1.3150 can be taken out. Expect some more supply coming into the 1.32 handle.
Looking at the S&P 500 from a technical perspective it had bounced back incredibly well from its huge sell off on Monday, last night it tested the 1520 resistance level and was sold heavily straight away. It has now formed a 3 touch downtrend line on the 4 hour chart with 3 lower highs and 2 lower lows. Our charts are telling us that the next leg down could be to the 1480 level but from a Fundamental perspective we would be very cautious as it seems extremely bullish and any dip is being bought. Another bullish sign for the American equity market is the sell off in commodities. Large hedgefunds are liquidating their positions in metals to free up capital to invest in stocks because the return is so much better. The U.S. also seems to be in a much better place then the Eurozone. The data throughout 2013 in the States has been very impressive, showing sure signs of an improving economy with no fear that the excess liquidity in the system will be reigned in anytime soon. It remains a buy any dip strategy until an additional catalyst gives us any reason to change our mind.
Just a quick note about Gold Technicals. They look strongly like a further decline is inevitable, after Tuesdays huge buying frenzy of gold on a dovish tone from Bernanke the Bounce did not hold any momentum and the rally was capped at 1620 the 50% fibonacci retracement from the 1694 to 1555 decline. This is a good retracement from a decline but the inability to bounce through this level shows that Gold is heading lower and is back at 1600 as I type. Another bounce towards 1615-1620 would provide a high probability set up for a short position targeting 1555 and below.
Some good support levels on the EUR/USD today is 1.3100-26 and topside 1.3155 and 1.3180.
S&P 500 1425 topside resistance and 1515 and 1510 support if the market sells off this morning.
Good Luck in the Markets