Despite a move by China
to tighten its monetary policy, U.S.
equity markets mounted a strong recovery late in the trading session on
Wednesday.This served as a sign that
there is plenty of money on the sidelines and that investors continue to
maintain a â€śbuy the dipsâ€ť mentality.
The March E-mini S&P continues to show strong support at
the .618 retracement level of 1124.00. The only obstacle in the way is the high
for the year at 1148.00.Volatility has
picked up considerably the past three days, highlighted by triple-digit moves
in the Dow.
The market has been hit by bearish news all week, but
continues to show resiliency. Although a change in trend is unlikely at this
time, the S&P 500 still remains vulnerable to a short-term correction to
1105.00. Some traders may be lured into buying a dip today because of the
action the past few days, but if you follow the â€śRule of 3â€ť, the next break is
likely to fail, triggering a sizeable break.
Demand for safety has been boosting March Treasury Bonds and
Treasury Notes, but this action is likely to end soon when the Treasury begins
increasing debt supply with another auction.The news that a Republican has been elected to the Senate has helped to
lower yields on the perception that many of the Democratic spending plans may
be curtailed.The current rally in the
March Bonds is most likely setting up another selling opportunity.
February Gold broke sharply lower on Wednesday and continued
the move overnight. Traders are dumping positions as the need for a hedge
against inflation has been diminished by Chinaâ€™s decision to tighten its
monetary policy.Conditions could be
approaching oversold status so traders should watch for a short-covering
rally.The best sign of developing
strength will be the regaining of a retracement level at $1108.70.A turnaround in the Dollar today could be the
catalyst for the start of a short-covering rally.
The lack of follow-through to the downside after the Dollar
surged to a new 5-month high has helped stabilize March Crude Oil.Currently, this market is locked inside a
retracement zone at 77.70 to 78.99.Speculators are most likely on the sidelines ahead of this morningâ€™s
The U.S. Dollar surged overnight as traders took protection
against a shift in Chinaâ€™s
expansionary monetary policy. The overnight announcement, that Chinaâ€™s
economic growth and inflation figures exceeded expectations fueled speculation
that it was poised to begin restricting loans and ending stimulus.Fear that the economy may overheat is
triggering demand for lower yielding assets at the expense of higher risk
Overnight the Cash Dollar Index rallied to its highest level
in 5 months and now seems well on its way to retrace its 2009 range of 89.62 to
74.17.This makes 81.90 to 83.72 the
next valid upside target.
The March Euro weakened further overnight as the cost to
protect Greek bonds from default soared to a new record.Losses were limited, however, by a rumor
which said the European Union was preparing to loan money to the country. The
rumor was denied, but investors, nonetheless, took protection against a
possible massive short-covering rally by lightening up positions.
The chart pattern suggests the Euro is holding the psychological
level of 1.4000; however, 1.3790 remains the next valid downside target.Short-covering today could send this market
back to the old bottom at 1.4215.
The March British Pound weakened further overnight on the
news that the U.K.
budget deficit widened.A lack of
confidence in the economy could also be a driving force behind the recent
weakness as investors fear that the U.K. may be falling behind its
peers in the midst of the economic recovery.
The current two-day break has created two key ranges:1.5825 to 1.6454 and 1.5890 to 1.6454.These ranges create retracement zones at
1.6140 to 1.6065 and 1.6172 to 1.6105. The overlap of these two retracement
zones suggests possible support developing inside 1.6140 to 1.6105.In addition, uptrending Gann angle support is
at 1.6132 today.Watch for a possible
technical bounce in this zone.
The March Japanese Yen is falling again overnight on
speculation the Japanese Yen is poised to once again become the worldâ€™s carry
currency.Additional weakness hit the
Yen following a report that demand for lending dropped.This news could raise fears of deflation and
is definitely a signal that the Bank of Japan will keep interest rates at
historically low levels at its January 25th meeting.
Investors seem to believe that Japan will be the last country to
exit its stimulus plans.This line of
thinking was backed by a comment from Bank of Japan Governor Shirakawa who said
the central bank â€śis aiming to maintain an extremely accommodative financial
Based on the short-term range of 1.0679 to 1.1076, traders
should continue to look for the Yen to break to 1.0878 to 1.0831 before finding
buyers.Additional support is at an
uptrending Gann angle at 1.0904.
The March Swiss Franc continued to weaken overnight.The next downside target is the December low
at .9522.Gann angle resistance is at
.9555.This angle has to hold or the profit-taking
stops will trigger a huge short-covering rally.Traders have been buying the Dollar against the Swiss Franc in
anticipation of an intervention by the Swiss National Bank because of its
appreciation against the Euro.
Technical factors could support the March Canadian Dollar
now that it has retraced greater than 50% of its recent rally.Based on the main range of .9303 to .9780,
the key retracement zone is .9510 to .9461. This market is currently testing
this area.A failure to hold
downtrending Gann angle resistance at .9580 will be another sign of strength.
Fundamentally, the recent action by the Bank of Canada
suggests that it will defend against a rapid rise in the currency.This creates a potentially long-term bullish
scenario. Short-term conditions are overbought, which may trigger a mild
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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