Fear that the economy
may slow down led to a massive sell-off in equities this morning.
Support failed in the stock indices after fresh money failed to show up
after an early morning sell-off. This broke the pattern of the last two
days and set the tone for a sizeable retracement.
The same fear
that is driving equities and commodities lower is helping to lower
yields on Treasury Bonds and Treasury Notes. Because of the increased
supply which is supposed to hit the market soon, expect this current
rally to be short-lived.
The stronger Dollar helped pressure
February Gold this morning. Liquidation is taking place in this market
because the need for a hedge against inflation has diminished now that
China has signaled its intention to tighten up its monetary policy.
Crude failed to hold on to support although todayâ€™s supply and demand
news was favorable. A general decline in all commodities because of the
stronger Dollar and the news from China is the catalyst behind todayâ€™s
The U.S. Dollar is trading mixed at the mid-session
as profit-taking and volatility dominate the trade. Earlier in the
session, the U.S. Dollar surged as traders took protection against a
shift in Chinaâ€™s expansionary monetary policy.
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 triggered demand for lower yielding assets at the expense of
higher risk assets.
Throughout the New York session, aggressive
buyers backed away from chasing the Dollar higher, leading to a
profit-taking break. Overbought conditions and intraday turnarounds in
the Euro and Yen were the primary causes behind the Dollarâ€™s developing
The March Euro weakened further during the New York
session, but losses were limited by a rumor which said the European
Union was preparing to loan money to the country to shore up its budget
deficit. 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, 1.3800 remains the
next valid downside target. Short-covering today could send this market
back to the old bottom at 1.4217.
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.
current two-day break has created two key ranges: 1.5832 to 1.6457 and
1.5895 to 1.6457. These ranges create retracement zones at 1.6144 to
1.6071 and 1.6175 to 1.6108. The overlap of these two retracement zones
suggests possible support developing inside 1.6144 to 1.6108. In
addition, uptrending Gann angle support is at 1.6132 today. At the
mid-session, the British Pound found support inside this zone at 1.6124.
March Japanese Yen fell overnight on speculation the currency is poised
to once again become the worldâ€™s carry currency. Additional weakness
hit the Yen following a report that demand for lending dropped. The Yen
turned higher following a sharp break in U.S. equities. This signaled
that traders were buying the Yen for protection.
Swiss Franc continued to fall overnight but backed off as it approached
the December low at .9522. A failure to hold a downtrending Gann angle
at .9555 triggered profit-taking stops, which led to a short-term rally
and turned the Swiss Franc higher. A higher close today will form a
closing price reversal bottom and could trigger the start of a sizeable
Technical factors could help 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
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