Fear over concerns about sovereign debt default and a worse
than expected U.S. initial claims report helped to push commodity and stock
markets lower on Thursday. Risk aversion drove investors toward safer, lower-yielding
assets to the benefit of the U.S. Dollar.
Investors were lightening up positions before the U.S. opening
when the news hit that Weekly Initial Claims had surprisingly increased. This
quickly encouraged long liquidation sending prices spiraling down throughout
the session, sending the major indices sharply lower.
The key level in the March E-mini S&P 500 at 1084.50 was
violated with a vengeance, triggering a free fall to a new low for the week.
Besides the fear that debt problems in Greece
will spread to other Euro nations thereby disrupting the global economic
recovery, traders reacted as if tomorrowâ€™s U.S. jobs report will not show an
increase as expected.
March Treasury Bonds surged to the upside as economic
worries pressured equities and commodities, sending investors into the safety
of the Treasury markets. The sharp rise in Treasury Bonds sent this market
screaming to the major 50% level at 118â€™24 as yields plunged. A close over this
level will be bullish with 119â€™24 the next upside target.
The stronger Dollar drove April Gold through a pair of
retracement levels and the last two main bottoms at $1076.50 and $1074.40.
Downside momentum indicates a further decline is likely with a major 50% level
at $1052.30 the next downside target.
Wednesdayâ€™s bearish crude oil inventory report along with a
drop in demand for higher risk assets pressured March Crude Oil. The charts
indicated that 75.29 to 74.63 would be the next downside targets, but these
prices offered no support. Look for an acceleration to the downside should the
pair of main bottoms at 72.53 and 72.43 fail to hold as support.
The March Euro closed sharply lower, pressured by concerns
that despite the proposal of a new budget plan, Greece lacks the means to deal with
its deficit issues on its own. Fears were also being raised that the fiscal
problems in Greece
are not isolated and may spread throughout the Euro Region should it default on
its debt. Risk aversion set in and traders bailed out of the Euro as they
sought protection against the possibility of a collapse in Greece.
This morning the European Central Bank announced that
interest rates would remain at 1% and stimulus intact as the economic
conditions in the Euro Zone have not improved enough to warrant any changes.
Although ECB President Trichet said he â€śis confidentâ€ť that Greece would get its budget under
control, traders acted as if it was going to take a bailout by the European
Central Bank, European Union or International Monetary Fund to take care of the
Trichet tried to calm fears of a meltdown in Greece
by saying the Euro Zone still faces major issues, but he is confident it is
headed toward recovery. His statement failed to prevent a further deterioration
in the Euro as the focus began to shift from Greece
to Portugal and Spain.
By the mid-session, the Euro was trading under an important
50% level at 1.3800. Downside momentum was strong which could drive this market
to the .618 level at 1.3483 over the near-term.
The theme of the day in almost all major currency markets
was risk aversion as investors sold higher risk commodities and stocks and
bought lower yielding assets throughout the New York
session on concerns the sovereign debt issues in Greece will spread to other
economies in the Euro Region. The Dollar finished sharply higher versus all
major currencies except the Yen.
Investor concerns about the sovereign debt woes in Greece ignited the break in equities and
commodities overnight, but a decision by the Bank of England and poor U.S.
jobs data helped to accelerate the rally in the Dollar. Traders took protection
while seeking shelter in the Dollar and the Japanese Yen.
The Bank of England as expected announced that interest
rates would remain at a historically low level. In addition, it voted to take a
pause in its quantitative easing program, but left open the possibility it
would increase its asset buyback program should conditions warrant such a move.
Traders didnâ€™t like the news and sold the March British Pound aggressively.
Investors are now becoming concerned that the deficit problems in the U.K. may escalate like they are in Greece.
The March Japanese Yen finished sharply higher as investors
sought safety in lower yielding assets over concerns about the possibility of
sovereign debt default in Greece.
Traders took the Yen higher after the ECB offered no viable solution to the
problems in Greece,
nor did it provide any confidence that the matter would not spread to other
Euro Region nations. The Japanese Yen tends to strengthen during economic
turmoil and uncertainty.
Look for this pair to continue to be the risk sentiment
indicator. As long as the fear of default exists, the Yen should continue to
appreciate. At this time, the Bank of Japan has no plans to halt the rise in
its currency. This could help fuel a steep rise in the March Japanese Yen over
The stronger Dollar pressured demand for commodities, namely
gold and crude oil. This action helped to fuel weakness in the Canadian Dollar.
Strong upside momentum drove the March Canadian Dollar through the last main
bottom at .9326. The weekly chart indicates that .9212 is the next downside
The weakening Euro once again raised fears the Swiss
National Bank would intervene to prevent the Swiss Franc from appreciating too
much versus the Euro. This helped the pressure the March Swiss Franc throughout
the day. Barring any changes with the Greece sovereign debt situation,
the next downside target is .9152.
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