U.S. Equities March Higher as Investors Gain Confidence
All three major stock indices finished the day sharply
higher after earlier weakness driven by a possible pact between the EU and Greece
and better than expected weekly jobs data.
Thursdayâ€™s rally indicates that confidence may have been
restored to the financial markets. This renewed confidence is tied to possible
improvements in the global credit markets and signs that the U.S. jobs
market may be confirming the developing recovery. Traders feel that an
agreement between the EU and Greece
will increase appetite for risk and bought in anticipation of the news. The
March E-mini S&P 500 is on path to test a 50% level at 1084.50.
The strong rally in April Gold market is a strong indication
that the pact between the European Union and Greece is imminent, thereby driving
up demand for risky assets. Speculators are anticipating that the agreement to
shore up the debt in Greece
will be released shortly. This release of this news should pressure the Dollar
and underpin the gold market. Gold closed near a minor retracement level at
$1095.10. A breakout through this level could trigger a further rally to
March Crude Oil posted a strong rally following early
session weakness. Crude oil was under pressure earlier in the session because
of uncertainty over the EU/Greece pact and the stronger Dollar. Oversold
conditions and the possibility of a weaker Dollar over the near term could
boost this market even further on Friday. Traders are looking for increased
demand for risky assets to continue as confidence returns to the financial
system. In addition, signs of an improving economy may increase demand for
energy.The charts indicate this market
has a clear shot at testing 78.44 over the near-term, but it must hold 73.77 to
complete the move.
News of an impending agreement between the Greece and the
EU helped to pressure March Treasury Bonds and Notes. Traders sold off safe
haven positions in anticipation of a resolution to the Greek deficit woes. Wednesdayâ€™s
comments from Bernanke, hinting at a hike in the discount rate also pressured
Treasury futures. Furthermore, traders feel that yields will rise because of
the new supply of Treasury debt hitting the market.117â€™01 is a key retracement level for March Bonds.
Downside momentum could trigger a further decline to 116â€™14. Talk is
circulating that foreign investors, especially China, may cut back on their demand
for bonds because of credit risks. This may drive up yields.
The March Euro made a successful test of last weekâ€™s low at
1.3584 and finished close to the middle of this weekâ€™s range. Early in the
session, the Euro broke sharply but buyers came in to defend the low.
Volatility is expected to continue to be high as traders are reacting to news
or the lack of news regarding the possible announcement by the European Union
of a plan to support the Greek economy.
The daily chart pattern suggests this market is being wound
tightly. The longer it remains in a tight range the stronger the breakout move.
A rally through this weekâ€™s high at 1.3838 should put this market on path to
retrace to at least 1.4079 over the near-term.
Timing the swings of the market has been difficult this week
as news has been sporadic. One thing that has been made clear is an agreement
between the EU and Greece
has been reached. The main issue driving the Dollar and the Euro today is the
details of the pact. Some bullish Euro traders apparently were led to believe
that a bailout out would take place, but that does not appear to be the case.
Talk is circulating that the pact is a show of solidarity by
the European Union. This is likely to mean that the EU as well as the
International Monetary Fund will maintain a watch over the Greek budget and
assure adherence to its strict requirements. Furthermore, loans will be
provided when deemed necessary to shore up the Greek economy.
Skeptics maintain that this type of agreement will not last
and that similar issues are likely to flare up in Portugal
These issues will once again test the foundation of the European Union. If
anything, trader reaction has been less than bullish although the door has been
left open for a substantial short-covering rally in the EUR USD.
The March British Pound tested this weekâ€™s low at 1.5534
before mounting a strong recovery rally. This market appears to be forming a
support base and like the Euro is awaiting details of the Greece rescue plan. Shorts are
likely to cover as the details of the rescue are released.
Technically, this market has a short-term upside target of
1.5801 to 1.5865. Gains could be limited because of the economic issues in the U.K.
On Wednesday, the Bank of England lowered its inflation estimate while hinting
at expanding and extending its quantitative easing program. Furthermore, just
because Greece is being
helped out does not mean the deficit issues facing the U.K. will go away. Over the
short-run, the focus may shift away from Greece
to the U.K.
The March Japanese Yen finished the day slightly higher
during an almost lifeless trading session. Thursdayâ€™s strength comes as a
surprise because the combination of the Greek rescue plan and Bernankeâ€™s talk
of raising the discount rate earlier in the week should have been supportive
for the Dollar. In addition, increased appetite for risk should have triggered
a more bullish response. Short-term oversold conditions could be triggering the
weakness. The lack of movement in this market could be suggesting that traders
remain nervous about the condition of the financial system.
The weaker Euro helped drive down the March Swiss Franc. The
low of the day was within a few pips of last weekâ€™s low at .9264. This was also
near an area where the Swiss National Bank finished last weekâ€™s intervention
action. Because of the magnitude of the situation in Greece, traders may be waiting for
the actual release of the details from the EU/Greek pact before committing to
the short-side. A recovery rally in the Euro over the past few days should
underpin the Swiss Franc because it eliminates the need for the SNB to
intervene to protect the value of its currency and its economy against
Canadian Dollar traders ignored the stronger Dollar and
instead chose to focus on the strength of gold, equities and crude oil. The
March Canadian Dollar opened higher, but broke a little early in the session as
the Dollar strengthened and risky assets fell.
Technically, this current rally in the Canadian Dollar is
related to last Fridayâ€™s closing price reversal bottom. The main trend on the
daily chart turned up today on the move through .9583, but gains were been
limited after a successful test of a 50% price at .9553. A failure to hold this
level will trigger a further rally to .9607. The bigger picture suggests more
rangebound trading should be expected.
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