Demand for Higher Risk Commodities Drives Gold Higher
April Gold surged for the third consecutive day fueled by a
combination of oversold conditions and a weaker Dollar. After failing to
attract fresh selling pressure following the break under the December bottom at
$1076.50, this market has formed a support base. Tuesdayâ€™s rally helped form a
new main bottom at $1073.20. Based on the short-term range of $1166.70 to
$1074.40, traders should look for a retracement to $1120.50 to $1131.40. Watch
for a technical bounce following a test of this zone.
equity markets failed to attract selling pressure early in the session,
triggering a buying spree. Increased demand for higher risk assets helped lead
the charge along with good earnings reports and a better than expected U.S.
Pending Home Sales Report. .
The March E-mini S&P 500 held an early test of a 50%
price at 1084.50.The failure to break
this market when it tested 1082.00 led to an initial short-covering rally which
encouraged fresh buying throughout the day session. The charts indicate a rally to 1109.25 is
likely over the near-term.
March Treasury Bonds finished higher in light trading.
Bigger players seem to be standing aside this week ahead of Fridayâ€™s monthly
Non-Farm Payrolls Report. Greater demand for risk could lead to renewed
pressure on Treasury futures if reports continue to support the recovery in the
economy. Fear had been driving investors into the safety of the March Treasury
Bonds and March Treasury Notes, but global economic conditions have calmed
enough to drive demand down. The bigger picture still indicates that March
Bonds are finding resistance inside a major retracement zone at 118â€™24 to
119â€™24. A close under 118â€™24 will indicate weakness that could trigger the
start of a break back to 116â€™06.
Demand for higher yielding assets and a weaker Dollar helped
to support March Crude Oil. Mondayâ€™s upbeat U.S. manufacturing report and
oversold conditions helped ignite the start of the current rally. A new main
range at 84.45 to 72.43 has been formed which could trigger a retracement to
78.44.Tomorrowâ€™s oil inventory report
will set the tone for the day. Traders will be looking to see if a pick-up in U.S.
manufacturing has led to increased demand for petroleum products.
The U.S. Dollar finished lower, pressured by increased
appetite for risky assets, despite a call from Treasury Secretary Geithner for
a stronger currency. Trading remained subdued today ahead of central bank
meetings on February 4th and the U.S. Jobs Data Report on the 5th.
Technical factors helped draw selling pressure to the
Dollar. At the start of the week, the Dollar Index, a trade weighted basket of
currencies, was at overbought levels based on the Relative Strength Index and
the Stochastics Oscillator. In addition, traders remain less skittish this week
about seeking higher risk assets. Low volume also contributed to the loss in
the Dollar. Noticeably absent was a major stopper in the market.
The Dollar was under pressure from the New York opening, following a weak overnight
showing. A comment from Treasury Secretary Geithner regarding a tighter U.S.
budget and a stronger Dollar did trigger a pause in the weakness about
mid-session, but that move did not materialize into anything substantial.
Higher demand for gold, crude oil and equities held the Dollar in check most of
the day and pressured it into the close.
The March Australian Dollar took a huge hit early last night
on the surprise announcement that the Reserve Bank of Australia was
leaving interest rates unchanged at 3.75% after three consecutive hikes. There
is no doubt that the moves by China
to tighten its lending practices as well as reign in its stimulus package had
an influence on the central bankâ€™s decision.
The Aussie fought back to finish off its low, which led to
speculation that the overnight break was more long liquidation rather than
fresh selling. In my opinion, the move by the RBA was more of a surprise to
economists rather than traders who have been pressuring the Aussie Dollar since
first began tightening. The lesson to traders caught long overnight is to watch
the bond market for indications as to which way traders are leaning.
The March Euro finished higher after yesterdayâ€™s closing
price reversal bottom formation. This pattern signals a correction in the
downtrend is taking place. So far the charts do not indicate a change is trend
is in the offing yet. Traders continued to cover recently established short
positions as pressure from the financial crisis in Greece seemed to be fading.
On Thursday, the European Central Bank is expected to
announce that interest rates will remain steady. In addition, investors expect
to hear more upbeat news on Wednesday when the European Union releases its
official opinion on Greeceâ€™s
efforts to shore up its budget. Early talk is that Greece plans on making drastic
changes to slash its budget deficit. Upside momentum could take this market
back to the last main bottom at 1.4029. Key support remains 1.3800. This price
represents a major 50% retracement level.
The March British Pound reversed earlier weakness to finish
slightly higher. Low volume was the highlight today amid speculation that
traders have turned less negative towards the economy despite a poor housing
market, growing fiscal deficit and uncertainty regarding the upcoming U.K.
election. On February 4th, the Bank of England is expected to announce that
interest rates will remain near zero. Traders are still trying to decide
whether the BoE will increase or extend its quantitative easing program. Last
quarterâ€™s poor GDP number may force its hand.
The March Japanese Yen traded stronger today despite
increased demand for higher yielding assets. The word is that speculators
pushed around a thinly trading session on the presumption that the central bank
is less likely to intervene to weaken a strong Yen. The news from Australia may increase demand for lower yielding
assets, but the rise in the U.S.
stock market is saying something else.
The rally in the Euro continued to take the pressure off the
Swiss National Bank to intervene.This
encouraged traders to buy the March Swiss Franc which had fallen sharply the
past week. Traders should continue to monitor the situation in Greece
to see if it triggers another sharp break in the Euro. Look for renewed
pressure on the Swiss Franc if the Euro turns weak once again. Watch for
volatility on Wednesday following the release of the EUâ€™s opinion on the Greece budget
solution. Based on current conditions, this pair may rally back to .9645 before
Firmer equities, gold, and crude oil helped support the
March Canadian Dollar. Mondayâ€™s closing price reversal bottom was confirmed
overnight and a new main bottom was formed at .9326. The chart indicates that a
minimum 2 to 3 day retracement is likely with an upside target of .9553.
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