Yesterday saw a major short squeeze on S&P500 as wrenched out the shorts who got in short on the market too early. There is a time to short and the trader who can learn the art of timing has mastered it. Having said that, not even 1% can consistently time the market over a 200 day trading period.

This is part of the premium update which we share with our subscribers on a daily basis. Part of it is shared here. We will look at key intermarket forex pairs and bond market charts to understand price action. We will also look at an important macro data point released yesterday.

First up is AUD/JPY:

AUD/JPY

Strong bunds and falling yields have made YEN more powerful than any currency. AUD is the king of risk trades. When two titans meet, the outcome will decide the dominant trend. Needless to say the winner here till now is still the YEN. AUDJPY on the charts above needs to take out 82.3 level which we expect to be taken out in 2012 (in keeping with our premium analysis dated 30 Jan 2012), is facing immediate headwinds as it fights of at 81 levels.

ES Charts

Commentary

The 30000 ft view still does not change. Markets have no more fuel left and unless it makes a structured move down to support zones at 1290 and then 1260 zone, there could be a case for crash landing which will hurt. Given the liquidity sloshing around, markets are finding it difficult to go below 1300 but once below should see traders reverse position and algo running reverse gear.

Bunds still testing out 140 and easing temporarily. In keeping with upward bias for February while being in a larger topping formation, we are setting for some nice long trades above 139 levels.

FX Setups

USDC/CHF: The bullish case will impose the downside for the Risk

USDCAD: CAD will not let it go

Dollar Charts

Bonds schedule for today
31-Jan-12 1000 EU ECB’s 7-day Refinancing Operation
31-Jan-12 1030 BE Auction EUR 3 bn EUR 3bln 3-, & 6-month T-Bill Auction
31-Jan-12 1200 EU ECB’s Liquidity Draining Operation
31-Jan-12 1445 UK Purchase GBP 1.7 bn BoE Asset Purchase Facility GBP 1.7bln 2038-2060 Gilt Purchases
31-Jan-12 1600 US Purchase Fed’s Outright Trea. Coup. Purch. Feb’36-Nov’41 (USD 2.25-2.75bln)
31-Jan-12 1630 US Auction USD 30 bn USD 30bln 4-Week T-Bill Auction
31-Jan-12 1900 US Fed’s Outright operation schedule announcement

Bunds and ES: Early warnings

All commentaries on the charts.

As usual bonds are giving us reversal signals, sometimes a bit too early. It is also being validated by the AUD/JPY in the charts here. Click here. Also further setups were shared here. Bond and FX setups

Macro News

The Economic Sentiment Indicator for the euro zone climbed in January for the first time in ten months, from a revised 92.8 to 93.4. This is another sign pointing to an end to the recession in spring. But this applies only to the euro zone economy as a whole. The economies of the peripheral countries will continue to face a contraction.

But the ESI’s first rise since February 2011 turned out smaller than expected (consensus: 93.8). Business confidence in the service sector improved markedly (-0.6, up from -2.6), whilst sentiment in industry remained flat (-7.2).

Following the purchasing managers’ indices, the ESI, too, has stopped its nosedive. This confirms our expectation that the recession in the euro zone will end in spring. But this applies only to the euro zone economy as a whole. It is too early to sound the all-clear for the periphery. The strict austerity measures in these countries continue to impose a heavy burden on the economy.

The ESI still indicates a sharp recession for Greece and Portugal (chart). In Italy, too, the trend is still down. Even if the euro zone economy stops contracting in spring, we are not reckoning with an upturn later in the year. We still expect GDP to contract in 2012. The basis for assumed contraction in EU economy is in case a flare of the debt crisis happens in 2012, then GDP faces major downside risks. The poker game about the second aid package for Greece still continues. If the country receives no fresh money, it will be insolvent by 20 March at the latest, when the Greek finance minister has to repay a bond with a volume of €14bn. Fear of contagion spreading to other euro zone countries is still running high. The risk premium for Portuguese government bonds has surged to new all-time highs. Nor can the other peripheral countries feel safe. Against the backdrop of the recession, many of them will fail to reach their deficit targets also in 2012. Investors will remain mistrustful.

EURCHF is nearing an important barrier and if taken out at 1.2050, we are in eye ball to eye ball with the SNB. The market direction will determine the general market direction for February. The last time they intervened in Sept 2011, triggered a massive risk aversion wave in Sept and then in Nov 2011.

Charts and commentaries added below.

All commentaries on the charts.

These are only part of the constant analysis being sent to regular subscriber of Capital3x. Capital3x has focused on out of the box analysis and research to provide cutting edge performance on their trading portfolio over the last 6 months.

The Performance can be viewed here: Performance

There has been a total of 37 times when the markets have been

You need to be a premium member to see the rest of the post

C3X

EURUSD is at 1.32 and above and there are shorts which continue to add even at these levels. Bunds have retraced their weekly losses to end the week at 138.97. What will cause EURUSD to correct ?

There is a leaked report about Germany after Greece sovereignty. Even IMF seems to be backing this.

(Reuters) – Germany is pushing for Greece to relinquish control over its budget policy to European institutions as part of discussions over a second rescue package, a European source told Reuters on Friday.

“There are internal discussions within the Euro group and proposals, one of which comes from Germany, on how to constructively treat country aid programs that are continuously off track, whether this can simply be ignored or whether we say that’s enough,” the source said.

The source added that under the proposals European institutions already operating in Greece should be given “certain decision-making powers” over fiscal policy.

“This could be carried out even more stringently through external expertise,” the source said.

The Financial Times said it had obtained a copy of the proposal showing Germany wants a new euro zone “budget commissioner” to have the power to veto budget decisions taken by the Greek government if they are not in line with targets set by international lenders.

“Given the disappointing compliance so far, Greece has to accept shifting budgetary sovereignty to the European level for a certain period of time,” the document said.

Under the German plan, Athens would only be allowed to carry out normal state spending after servicing its debt, the FT said.

“If a future (bail-out) tranche is not disbursed, Greece cannot threaten its lenders with a default, but will instead have to accept further cuts in primary expenditures as the only possible consequence of any non-disbursement,” the FT quoted the document as saying.

The German demands for greater control over Greek budget policy come amid intense talks to finalize a second 130 billion-euro rescue package for Greece, which has repeatedly failed to meet the fiscal targets set out for it by its international lenders.

CHAOTIC DEFAULT THREAT

Greece needs to strike a deal with creditors in the next couple of days to unlock its next aid package in order to avoid a chaotic default.

“No country has put forward such a proposal at the Eurogroup,” a Greek finance ministry official said on condition of anonymity, adding that the government would not formally comment on reports based on unnamed sources.

The German demands are likely to prompt a strong reaction in Athens ahead of elections expected to take place in April.

“One of the ideas being discussed is to set up a clearly defined priorities on reducing deficits through legally binding guidelines,” the European source said.

He added that in Greece the problem is that a lot of the budget-making process is done in a decentralized manner.

“Clearly defined, legally binding guidelines on that could lead to more coherence and make it easier to take decisions – and that would contribute to give a whole new dynamic to efforts to implement the program,” the source said.

“It is clear that talks on how to help Greece get back on the right track are continuing,” the source said. “We’re all striving to achieve a lasting stabilization of Greece,” he said. “That’s the focus of what all of us in Europe are working on right now.”

In addition to the premium charts and analysis published earlier, may we venture to add some more charts and commentary. This time, the not so good things and facts.

The FED looks at certain key data points before deciding their language and actions. One of them is the housing data. They also look CPI and unemployment and wages data.

But it is no secret that housing holds the key to the whole of what FED plans to do. It captures essentially the whole of the economy.

The Commerce Department said Thursday new-home sales fell 2.2 percent last month to a seasonally adjusted annual pace of 307,000. The pace is less than half the 700,000 that economists say must be sold in a healthy economy.

About 302,000 new homes were sold last year. That’s less than the 323,000 sold in 2010, making last year’s sales the worst on records dating back to 1963. And it coincides with a report last week that said 2011 was the weakest year for single-family home construction on record.

Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to the National Association of Home Builders.

A key reason for the dismal 2011 sales is that builders must compete with foreclosures and short sales — when lenders accept less for a house than what is owed on the mortgage

Builders ended 2011 with a third straight year of dismal home construction and the worst on record for single-family home building. But in a hopeful sign, single-family home construction, which makes up 70 percent of the market, increased in each of the last three months.

FED cannot even think of changing the language of the policy statement unless they see at least a week bounce in new home sales.

C3X