equity markets experienced high levels of volatility this week. At times it
looked like the Bears were ready to crush them, only to be met by the â€śNever
say dieâ€ť Bulls.The continuing strength
in the Dollar keeps putting pressure on stocks as traders reverse the carry
trade.The pressure has not been enough
to trigger the slew of stop loss orders that seem to be well-placed below the
current trading zone. A bearish pattern will become clearer if these markets
can form a secondary lower top.The
markets are likely to turn sharply lower once a key main bottom is taken out on
the weekly chart.At this time, there
are no indications that this market is ready to turn down yet.There are indications of a short-term top,
but nothing that indicates a change in trend to down is imminent.
The primary driver for this weekâ€™s weak trade in the equity
markets has been aversion to risky assets due to credit concerns in the Euro
Zone.Traders should monitor new
develops to see if this crisis is spreading to our shores.
Treasury futures traded mixed this week before closing
higher. The Fed announcement on Wednesday regarding its plan to begin removing
stimulus measures put in a bottom as it became a â€śsell the rumor, buy the factâ€ť
situation.Oversold conditions may
trigger a short-covering rally next week, but the long-term charts still
indicate lower markets to follow.
The U.S. Dollar finished at a 15-week high buoyed by debt
concerns in Greece
and the Fedâ€™s release of more detailed plans to remove excess liquidity from
the financial system.
The U.S. Dollar opened the week lower after Abu Dhabi ponied up $10
billion to shore up the debt of Dubai World.This break was short-lived, however, because speculators bought on the
break in anticipation of more hawkish comments from the Federal Reserve. The
Dollar remained steady after the Federal Reserve released its monetary policy
statement on Wednesday, but soared on Thursday following an S&P downgrade
debt.Friday, the Dollar traded mixed as
traders alternated between demand for risk and risk aversion.
Earlier this week, the Fed offered commentary on the
economy, saying that deterioration in the labor market was â€śabatingâ€ť.This statement was a reaction to the decline
in the unemployment rate earlier in the month from 10.2% to 10.0%.The Fed did reiterate, however, that it will
keep its benchmark interest rate at a historically low level for â€śan extended
Bernanke and his friends also said â€śHousehold spending
appears to be expanding at a moderate rate, though it remains constrained by a
weak labor market, modest income growth, lower housing wealth and tight
credit.â€ťThis statement can be
interpreted to mean the Fed still wants to see people getting jobs, consumers
spending and banks lending money.
The March Euro finished the week sharply lower.Economic reports were largely ignored this
week as traders chose to focus on the developing debt concerns in Greece, Spain
and Portugal.These problems will not go away until
addressed by the European Central Bank.Some traders feel that the other shoe is about to fall if Moodyâ€™s rating
services decides to downgrade any of these three countries.No one is certain if there are other
countries facing similar debt problems.This crisis may spread to Ireland or Western European
nations. The Fed announcement is old news.Traders should pay close attention to the debt issues.Look for the situation to fester for some
time and maybe even turn explosive.This
could mean serious downside pressure for the Euro.
Despite efforts to hold the March British Pound steady,
sellers finally took control to drive the Cable lower for the week.Debt issues in Europe are raising concerns
banks may face exposure to bad debt.In
addition, the U.K.
has debt ratings issues of its own to worry about.The story that the U.K. debt rating may fall below AAA
is still out there and helping to limit upside movement. Until the budget gets
fixed, look to be a seller on rallies.
The weakness in the equity markets is triggered another
round of carry trade reversals this week which is helped pressure the Japanese
Yen. On Friday the Bank of Japan left its benchmark interest rate at
0.10%.In addition, it hinted that its
biggest concern remains deflation.Overall there were no surprises in the policy statement.Look for pressure on the Yen to continue if
equity markets continue to weaken.The
unraveling of the carry trade could have significant consequences for the
U.S. Dollar tried to break out to the upside against the
Canadian Dollar, but a geopolitical event on Friday forced traders to think
otherwise.Improvements in the U.S.
economy seem to be spilling over to the Canadian side of the border. This means
the March Canadian Dollar will become more sensitive to news which affects
their exports - gold and crude oil.If
the Iranian takeover of an Iraqi oil field develops into something, oil prices
could shoot up, taking the Canadian dollar with it.
The March Swiss Franc was down big this week. Traders not
only reacted to the possible hike in U.S.
interest rates but also to the growing debt issues in Europe.
Traders sold the Swiss Franc earlier in the week on concerns the sovereign debt
issues in Europe would adversely affect the
Swiss Banking system.Higher gold prices
could save the Swiss Franc from a hard fall.
February Gold finished the week marginally lower.Gold traders seem to be ignoring the stronger
Dollar while shifting their focus to the developing situation in the Middle East.Gold
traders appear to be hedging the possibility that the situation between Iran and Iraq will develop into something
major over the week-end. After holding yesterdayâ€™s low and regaining a key 50%
price at $1107.40, gold was able to mount a small rally to $1118.00. The chart
indicates that there is room to the upside with $1139.50 a possible target.
A geopolitical event could help March Crude Oil rally next
week.Itâ€™s been reported that Iranian
troops took over an Iraqi oilfield.This
news triggered a short-covering rally overnight but New York traders didnâ€™t chase the market
higher.This situation should be
monitored over the week-end because it will set the tone in oil markets next
week.If nothing develops then look for
the stronger Dollar and bearish supply/demand conditions to continue to
pressure crude oil.
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