Equity Markets Weaken as Greece Downgrades Spooks Traders
stock markets are expected to open lower based on weaker markets
overnight.Traders are taking risky
positions off the table in response to another debt rating downgrade of Greece.Traders now fear that the debt crisis could
worsen in the Euro Zone and perhaps spread to U.S. banks.This news is triggering a rally in the Dollar
and subsequent weakness in the U.S.
equity markets.Today could be an ugly
day in U.S.
stock markets if enough traders decide to book profits before the end of the
year rather than risk a substantial correction.
March Treasury Bonds are trading higher due to demand for a
safe haven investment.Yesterdayâ€™s Fed
statement signaled that rates were going to move higher.This pressured the Treasuries, particularly
the long-end of the yield curve.The
overnight downgrade of Greece
debt and the sell-off in equity markets has sent traders to the safety of the
The stronger Dollar is pressuring February Gold.Yesterday gold rallied while the Dollar
traded flat.This perhaps was a sign
that investors were beginning to focus on inflation or central banks were
buying again.The overnight weakness
suggests, however, that the Dollar still wields a strong influence on the
direction of gold.
March Crude Oil is trading lower after a three day
short-covering rally.The rally the past
few days was in response to a possible top in the Dollar.Todayâ€™s stronger Dollar is expected to exert
pressure on the energy complex.In
addition, the supply and demand situation still indicates the possibility of
another near-term low.Look for lower
markets as long as March Crude Oil remains under 75.63.
The U.S. Dollar is surging against a basket of trade
weighted currencies overnight following the news that the S&P Corp.
credit rating for the second time this year.This news has been particularly bearish for the Euro as it raises the
possibility that more downgrades of Euro Zone sovereign debt are to follow.
Investors now fear that the spread of bad debt throughout the region could
trigger serious problems banking issues, curtailing the current economic
The downgrade news came on the heels of yesterdayâ€™s Federal
Reserve report.While not actually a bullish
report for the Dollar, the Fedâ€™s carefully chosen language did nothing to
damage the developing uptrend.The Fed
essentially declared the financial markets healthy enough to begin removing
emergency stimulus before its scheduled ending date on Feb. 1.The Fed cited â€śimprovements in the
functioning of financial marketsâ€ť as the main reason to believe it would let
its financial aid packages expire on time in February.
The Fed also added that labor issues were â€śabatingâ€ť.This comment was influenced by the drop in
the unemployment rate from 10.2% to 10.0%.The Fed upgraded the growth outlook as improvements in economic data
since its last meeting in November warranted the following comment, â€śeconomic
activity has continued to pick-up and that the deterioration in the labor
market is abating.â€ťFinally, the Fed
added that â€śfinancial market conditions have become more supportive of economic
On the downside, the Fed said, the economy is â€ślikely to
remain weak for some time.â€ť In addition, the Fed reiterated its pledge to keep
interest rates â€śexceptionally lowâ€ť for an â€śextended period.â€ťThis comment led economists to believe that
interest rates are not likely to rise until June 2010 or later.
So while the Fedâ€™s comments did nothing to break the Dollar,
there were sufficient enough friendly comments to help the Dollar remain
firm.Based on this assessment, traders
will focus today on the developing debt issues in Greece while speculating that more
issues with other countries are likely to surface.
Initially, the thought was that more hawkish comments from
the Fed were already priced into the market, but this wasnâ€™t the case during
the early hours of todayâ€™s session.Almost immediately after the close of the New York trading session, the Dollar began
to firm.The Greek downgrade news
reaffirmed the trend and fueled a substantial upside breakout.
In addition to the weakness in the European currencies, the March
British Pound is under pressure because of a disappointing retail sales
report.This news overwhelmed
Wednesdayâ€™s better than expected jobless claims data.
Falling gold prices and the weakening stock market are
pressuring the Canadian Dollar.Technically, the March Canadian Dollar broke out to the downside on a
move through .9363.The next downside
target is a swing bottom at .9301.The
weekly trend will turn to down on a trade through .9094.
Demand for higher yields, an improving economy and the
reversal of the carry trade is helping to trigger a sharp break in the March
Japanese Yen. Overnight this market
tested an uptrending Gann angle which stopped the market last week.This angle is at 1.1022.
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