Demand for Risk, Greek Resolution Fuel Stock Market Rally
stock indices rallied sharply higher following the release of better than
expected U.S. Non-Farm Payrolls Report. Investors drove up stock prices on the
belief that the jobs data indicates an improving economy. News that the Greek
parliament approved its current budget cuts and tax increases helped drive up
demand for higher risk assets as it indicated that a financial crisis in the
Euro Zone may have been averted. Technically, the daily swing chart indicates a
possible move in the March E-mini S&P 500 to 1156.00 by March 12th.
June Treasury Bonds finished sharply lower after the better
than expected jobs report signaled that the economy was improving, bringing the
Fed closer to hiking interest rates. Additional pressure came as traders pared
positions because of increased demand for higher yielding assets. Based on the
short-term range of 114â€™15 to 118â€™02, traders should look for weakness to drive
this market down to the next major retracement level at 116â€™04 to 115â€™24.
April Gold had a modest increase despite the weaker Dollar. The
muted reaction to the weaker Dollar indicates that it may have already been
priced into the market. This market is struggling with a major 50% retracement
level at $1136.75. A failure to regain this price could help trigger a
retracement to $1117.20. Holding above it should be enough to fuel a rally to
$1158.10. Traders who bought gold as a hedge against the demise in the Euro may
be liquidating their positions. This could be another reason why gains were
June Crude Oil finished higher for the week. Fridayâ€™s jobs
data indicates that the economy is improving. This could mean greater demand
for higher yielding assets. The primary reason for this weekâ€™s rally however
was most likely greater demand for more risky assets.
The U.S. Dollar finished lower against most major currencies
after better-than-expected jobs data drove investors into higher yielding
assets. The initial move in the Dollar was up after the U.S. Non-Farm Payrolls
Report showed fewer jobs were lost than estimated. Traders bought the Dollar on
the belief that the better jobs number would move the Fed closer to hiking
interest rates. Higher interest rates would make U.S. investments relatively more
attractive. This move was short-lived however as investor demand for higher
yielding assets overcame the desire to hold Dollars.
The March Euro finished the day higher after the Greek
parliament approve a package of budget cuts and tax increases. These financial
reforms prompted Greeceâ€™s
prime minister to state that it wouldnâ€™t need aid from other European Union
members. This was probably a response to reports from earlier in the week
suggesting that Germany and France
stood ready to provide aid to the struggling nation.At one point this week, Greece was even willing to seek aid
from the International Monetary Fund.
The apparent resolution of the Greece budget crisis came on the
heels of a successful 10-year bond issuance. Demand for the Greek debt was
robust although it had to pay a hefting price to encourage interest.
The action by the Greek government to approve fiscal
measures designed to shore up the economy is favorable news to the Euro. The
move means that Greece
is ready to accept fiscal responsibility and begin to move forward. Although
the Euro is expected to respond favorably over the short-run, other Euro Region
sovereign nations face similar problems if they are unwilling to make the
budget cuts necessary to get control of their finances. This is why any rally
in the Euro will be short-lived.
Traders should watch the CFTCâ€™s Commitment of Traders Report
to see if the record amount of short positions against the Euro has dropped.
This will be the best indication of an impending short term rally because it
will show that shorts traders are exiting their positions.
The March British Pound finished on its high. Upside
momentum seems to be building which could take this market to a 50% level at
1.5297 over the near-term. The current rally appears to be driven by
short-covering and bottom-picking following a sharp sell-off earlier in the
week. The driving forces behind the recent sell-off have been the weak economy,
soft monetary policy and political uncertainty. The current rally appears to be
relief-driven, now that the Greece
budget crisis has apparently ended.
The March Japanese Yen closed sharply lower. The improving U.S.
economy and demand for higher risk assets put pressure on the Japanese Yen as
it resumed its role as a funding currency. Traders also reacted to the
possibility that the Bank of Japan will announce more stimuli at its upcoming
policy meeting. Fridayâ€™s rally completed the first objective of Thursdayâ€™s
closing price reversal bottom when it reached a .618 price level at 1.1041.
The strengthening Euro also helped to underpin the March
Swiss Franc. Traders expressed relief that a higher Euro will encourage the
Swiss National Bank from any further interventions. The main upside objective
remains a major 50% level at .9526.
The March Canadian Dollar finished sharply higher for the
week, but upside momentum appears to be slowing as this market approaches the
January high at .9780. The fundamentals support a higher Canadian Dollar
because of the robust growth of the economy, but the Bank of Canada may attempt
to stop its rise because it may damage the export market.
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