stock market rally stalled after an early morning surge following dovish
comments from Fed Chairman Bernanke. In his testimony before the House
Financial Services Committee, the Fed Chairman reiterated that interest rates
would remain low for a prolonged period of time. While acknowledging that the
economy was improving, Bernanke did say that high unemployment remains a
concern. Following an initial thrust to the upside, the March E-mini S&P
500 settled into a tight trading range. Investors are trying to assess whether
lower interest rates will mean greater demand for risky assets or serve as an
indication that the economy is weakening.
March Treasury Bonds and March Treasury Notes soared to the
upside after the latest U.S.
New Home Sales Report declined more than expected. This report signaled to
traders that interest rates would remain low for some time as the economy still
needs to show more robust improvement before the Fed will feel comfortable
enough to begin hiking interest rates. This point was re-emphasized during
By the close, Treasuries were unable to hold on to their
earlier gains after retracing up to a minor .618 level at 118â€™05. The lower
close indicates that a follow-through to the down side is likely on Thursday.
April Gold traded finished lower after failing to hold on to
intra-day gains triggered by a break in the Dollar. The weaker close has this
market in a position to test a key retracement zone at $1088.00 to $1077.75. The
inability to assess risk sentiment is keeping traders on the sidelines.
April Crude Oil traded better, driven higher by the stronger
Euro, weaker Dollar and higher equity prices. The rally took place despite a
bearish crude oil inventory report which showed a rise in supply. A weaker
Dollar on Thursday should drive this market higher.
The U.S. Dollar regained most of its mid-session loss to
finish only slightly worse than Tuesday. Comments from Fed Chairman Bernanke
triggered an early session break after he reiterated the Fedâ€™s stance that
interest rates would remain low for an â€śextended periodâ€ť.
Bernanke also emphasized that last weekâ€™s discount rate hike
was not an indication of monetary policy tightening. This was a concern for
most investors who wanted the Chairman to give a few clues as to the timetable
of additional hikes later in the year. Based on the Fedâ€™s assessment of the
economy, it is very likely that the Fed will leave interest rates unchanged for
the rest of the year.
The lack of signs of sustainable growth in the economy is
what is keeping the Fed from hiking rates. This is also what initially drove
the Dollar lower.In addition, traders
seemed to be squaring up positions after over-reacting to last weekâ€™s surprise
hike in the discount rate.
The March Euro rallied after Bernankeâ€™s statement despite
on-going turmoil in Greece
triggered by a labor strike. Technically, this market held support at a .618
retracement level at 1.3483 and a main bottom at 1.3443. Last Fridayâ€™s
confirmed closing price reversal bottom pattern remains intact. The charts are
also suggesting that regaining 1.3656 will be a sign of strength, but it will
take a trade through the old main top at 1.3788 to turn the main trend to up.
The March British Pound spent most of the day inside of
Tuesdayâ€™s range and basically treaded water the entire day. The British Pound
had almost no reaction to Bernankeâ€™s comment about the future of U.S.
interest rates. Investors instead chose to focus on the problems in the U.K.
economy, the growing budget deficit and Fridayâ€™s final fourth quarter GDP.
The prospect of lower U.S. interest rates for an
â€śextended periodâ€ť helped strengthen the March Japanese Yen initially, but the
Dollar recovered versus the Yen as the market approached the mid-point of the
session. Technical factors seemed to drive this market down after fresh buying
failed to trigger a rally to the upside following a penetration of a .618
retracement level at 1.1126. Intra-day resistance was established at this price
however, a break through the 50% level at 1.1064 will be needed to show weakness.
The stronger Euro deadened the chances of another
intervention by the Swiss National Bank which helped to strengthen the March
Swiss Franc. This pair traded inside of Tuesdayâ€™s range which could be an
indication of impending volatility. Last Fridayâ€™s closing price reversal bottom
pattern remains intact, which makes this market vulnerable to a short-term
correction over the next 2 to 3 days. If the Euro picks up strength, then look
for this move to continue to develop as long as the main bottom at .9176
Bernankeâ€™s comments about the U.S. economy and the direction of
interest rates helped weaken the U.S. Dollar while triggering short-covering
rallies in Gold and Crude Oil. The pick-up in demand for commodities underpinned
the March Canadian Dollar after this pair completed a short-term retracement to
a 50% price at .9459. Wednesdayâ€™s lower, low and higher close could lead to
more upside momentum tomorrow. A failure to hold .9459 however could trigger
further downside momentum to .9415.
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