U.S. Equities Post Strong Gains on Renewed Interest in Higher Yielding Assets
Confidence that the Greek budget deficit problem may be
improving helped to drive up demand for risky assets. This helped to boost U.S. stock
indices. Traders were also becoming more confident about improvements in future
corporate earnings because of the recent improvements in the economy. The
strong rally in the March e-Mini S&P 500 has put this market in a position
to test a key retracement area at 1094.50 to 1107.00.
Technical factors may have driven up demand for March
Treasury Bonds. A successful test of a key 50% retracement price at 117â€™01
triggered a strong short-covering rally. Upside momentum could trigger a
further rally to 118â€™24 before new selling comes in. Investors do not expect
too much upside activity because of the growing U.S. budget deficit and huge supply
of bonds in the market.
Increased demand for higher risk assets and thin, narrow
trading helped boost April Gold and April Crude Oil. The weaker Dollar was the
biggest contributors to the rallies in these two markets.
The weaker Dollar has triggered huge rallies in April Gold
and April Crude Oil.Demand is soaring
for higher risk assets as traders believe that the recent break in the Euro may
have been overdone. The strong rise in Gold is a sign that traders expect the
Dollar to weaken further as the European Union/Greece situation works its way
The Euro soared on Tuesday as news that Greece is ahead
of its deficit-reduction targets boosted investor confidence. Traders
celebrated the news that Greece
may not require any bailout from the European Union by driving the EUR USD
higher while posting its biggest gain in seven months.
Short-covering was most likely the driving force behind
Tuesdayâ€™s rally which means a retracement is likely at some time this week. If
this market is truly ready to change the trend to up, then fresh buying has to
come in on the next test of the recent bottom. Bullish traders will try to set
up a secondary higher bottom.
The GBP USD finished the day higher.A report released overnight showed that
inflation accelerated in January to its fastest pace in 14 months. This news
helped trigger a short-covering rally. Inflation was up 3.5% which exceeded the
Bank of Englandâ€™s target of 2.0%. This prompted a response by BoE Governor
Mervyn King to explain the rise. Traders are becoming less confident in the
BoEâ€™s ability to help the economy while at the same time preventing a surge in
inflation. Demand for higher risk assets helped the Pound overcome the economic
issues it is facing.
The USD JPY finished slightly better on light trading. The
week-long Chinese holiday may be playing games with the volume. Early during
the trading session, the Dollar was trading lower against the Yen as Japanese
investors repatriated gains from U.S. Treasury investments. Later, demand for
higher risk assets and the stronger U.S. economy helped to drive
investors out of the safety of the Japanese Yen into the U.S. Dollar.
The strengthening Euro diminished the possibility of another
intervention by the Swiss National Bank. This helped to trigger a profit-taking
break in the USD CHF. Traders should watch for a huge correction in this market
should the Euro continue to post strong gains.
Sharply higher gold and crude oil boosted the Canadian
Dollar on Tuesday. The main trend in the USD CAD is down on the daily chart.
Todayâ€™s downside momentum has been strong enough to push this market through a
key retracement zone at 1.0501 to 1.0436.Despite the sharp sell-off, most investors expect this market to remain
inside the 1.0224 to 1.0780 range over the near-term.
Greater demand for risky assets is helped to boost the AUD
USD. Tuesdayâ€™s strong rally exceeded a key 50% price at .8953. The next target
is now .9042. Traders also reacted positively to the news from the Reserve Bank
minutes. This report showed that the RBA vote to keep interest rates unchanged
in February was closer than originally thought. This opens up the door to
future rate hikes.
Renewed demand for higher risk assets helped drive up the
NZD USD. Thin market conditions because of the Chinese holiday helped this
market surge to the upside. The chart indicates that .7124 is the next upside
target. Technically oversold conditions also helped to drive out weaker shorts.
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