Stocks Ignore Bullish Economic Data; Turn Focus on Risk
stock indices had enough information in todayâ€™s bullish GDP report to mount a
strong rally, but concerns about the debt crisis in Greece and a poor outlook for
technology stocks led to a late session sell-off.
If the situation in the Euro Zone continues to escalate and
capture the bulk of the headlines, then look for investors to turn more risk
averse.This will underpin the Dollar but
pressure stock indices and gold.
The robust GDP report should have pressured the March
Treasury Bonds, but traders didnâ€™t bite on the move, choosing instead to take
safe positions. This market closed above a key 50% level at 118â€™24, putting it
in a strong position to rally further to the .618 retracement level at 119â€™24.
A flight to quality rally is likely to get triggered if concerns about Greeceâ€™s
ability to cover its debt escalate.
Bonds rallied overnight but found resistance at a major 50%
price at 118â€™24.This level is still
holding as resistance. Bearish traders want to see this price hold in order to
attract more sellers who could eventually drive this market to the down side
objective at 116â€™06.
April Gold closed inside last monthâ€™s range but lower for
the month. This pattern suggests impending volatility and an expanded range
with a bias to the downside. The stronger Dollar, low inflation and the
expected drop in demand from China
is likely to trigger a sharp break to the downside.
The short-term pattern suggests that March Crude Oil
contract is trying to establish support near the December bottom at 72.53. Longer-term
charts indicate a break to 65.38 is possible. Bullish oil traders got a better
than expected GDP figure on Friday, but couldnâ€™t hold on to early gains. This
report indicates the economy is expanding, but not enough to trigger an
increase in demand.
The U.S. Dollar closed out the month of January sharply
higher as aggressive buyers helped the Greenback surge to the upside following
Friday morningâ€™s better than expected U.S. GDP report. The report which blew
out forecasts encouraged traders to buy with both hands as investor sentiment
turned more optimistic toward a strong U.S. economic recovery.
Earlier in the week, the Dollar was bolstered by a more
upbeat statement by the Federal Reserve. Although the FOMC left interest rates
unchanged, it did change its outlook on the economy from â€śweak growthâ€ť to
â€śmoderate growthâ€ť.The markets responded
by driving up the Dollar in anticipation of higher interest rates and a much
better outlook for the economy going forward.
Most of the time this week, the Dollar showed strength as
investors became more optimistic about the U.S. economy, but demand for safety
because of concerns over sovereign debt issues in Greece and Portugal also
contributed greatly to the rally.These
problems are likely to linger over into next week and until a viable solution
The March Euro finished the month sharply lower and in a
position to test 50% of last yearâ€™s July to November rally.The main range is 1.2329 to 1.5144 with
retracement levels at 1.3800 to 1.3483. The combination of an improving U.S. economy and concerns over sovereign debt
issues in Greece and Portugal
pressured the Euro. Look for this down trend to continue until this market
becomes oversold or until Greece
and the European Union reach a solution on how to shore up the Greek budget.
The March British Pound closed slightly lower for the month.
The lack of growth continues to plague the U.K. economy.On Friday, the Pound finished sharply lower
following a robust U.S. GDP Report. The long-term chart indicates that this
market may be vulnerable to a correction back to 1.5271. Watch for an
acceleration to the down side to begin following a break down under 1.5706.
The March Japanese Yen finished the week slightly lower, but
gained ground for the month. Renewed strength in the U.S. economy helped the Dollar rise
sharply over the Yen on Friday. For the month, this currency traded between two
50% levels at 1.0815 to 1.1217.A
breakout over either one of these prices in February is likely to trigger a big
move.At times, the Yen showed weakness
because of improvements in the U.S.
economy.Other times, the Yen
strengthened when investor sentiment shifted toward safety. Something is going
to have to give soon.Either investors
are going to sell the Yen hard as the economic outlook for the U.S.
improves, or the Yen will rally sharply higher if traders turn more risk
The March Swiss Franc turned the main trend to down on the
weekly chart, following a breakdown under .9522.In addition, this market posted its second
consecutive lower month and now appears to be on pace for a break to .9152.Not only was the strengthening Dollar softening
the market, but the weakening Euro versus the Swiss Franc also helped to
trigger concerns that the Swiss National Bank was getting ready to
intervene.One of the main concerns for
the SNB is its appreciation versus the Euro.In this case, the sovereign debt issues in Greece
have helped weaken the Euro enough to make the Swiss France look strong.
The monthly March Canadian Dollar chart formed a closing
price reversal top which indicates the possible start of a huge break to the downside.
This type of pattern usually suggests the formation of a major top.In addition, following the formation of this
pattern the market breaks 50% of the last rally over a 2 to 3 month
period.This projects a possible move to
.8765 by April.The stronger U.S.
economy coupled with weaker crude oil and gold prices is not very supportive
for the Canadian Dollar.In January, the
Bank of Canada reiterated its stance against a stronger currency and vowed to
take whatever action it deemed necessary to prevent a strong currency from
derailing the economic recovery.
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