Stocks Rally after Dollar Gives Back Mid-Session Gains
stock indices treaded water all morning following an overnight rally that was
prompted by greater demand for higher risk assets. At the mid-session, the
Dollar mounted a slight recovery but was not able to hold unto gains into the
close. This helped boost equity prices late in the trading session, but the
market still remained in a tight range.
June Treasury Bonds posted a comeback near the mid-session after
breaking to near a 50% level at 116â€™04 earlier in the session. T-Bonds were
down as investors shifted their interest toward higher risk assets.
The strengthening Dollar helped to drive April Gold and June
Crude Oil lower. Liquidation may have been taking place in gold by traders who
were looking for the demise of the Euro because of the Greek financial crisis.
The U.S. Dollar had a choppy, directionless day. The lack of
event risk was likely the main reason for this as well as the easing of the
Greek fiscal crisis. Trading could continue in a similar manner over the next
few days because the first major report, Weekly Jobless Claims, is not due out
until Thursday. This will be followed by the Retail Sales Report on Friday.
The Greenback started the New York session under pressure against most
major currencies except the Japanese Yen. Trading was light and less volatile
than last weekâ€™s action. Shortly before the New York session opening, the Dollar began
to mount a slight comeback which accelerated into the mid-session.
The strong rally into the mid-session occurred as traders
backed away from higher risk assets. Comments from German Chancellor Angela
Merkel may have been the catalyst behind the weakness in the Euro. Merkel said
that a Greek bailout is not on the table and pointed toward the no bailout rule
in the European Union agreement as the reason behind her comment.
Another reason for the mid-session weakness in the Euro may
have been comments from Greek Prime Minister Papadreou who hinted that heâ€™d be
willing to turn toward the International Monetary Fund for help if the EU
didnâ€™t come through with financial aid. His comments were most likely designed
to light a fire under the EU to take action sooner.
Papadreou, in Washington to
meet with the President and other government officials, also wants the U.S.
to investigate recent trading activity in the Euro to look for signs of
manipulation or excessive speculation. This action could prompt a rapid
liquidation by hedge funds which would trigger a massive short-covering rally.
Risk appetite was up overnight, driven by strong demand from
Asia, favoring riskier, higher yielding
currencies. This helped drive up the Australian Dollar and New Zealand Dollar
while putting the lower-yielding Japanese Yen. Approaching the mid-session, the
Aussie and Kiwi weakened to break but were able to regain their strength into
the close. Short-covering due to oversold conditions helped to drive the New
Zealand Dollar higher. On March 10th, the Reserve Bank of New Zealand meets to discuss
monetary policy. It is expected to leave interest rates unchanged due to the
The primary driver of the higher Forex markets overnight was
speculation that European nations would rescue Greece financially if needed.
Traders reacted positively to comments from French President Nicholas. Over the
weekend he said that the Euro Region nations are â€śreadyâ€ť to help Greece.
He also added however, â€śif it were necessaryâ€ť.
These comments drove the March Euro higher as they reduced
the perceived risk of debt defaults throughout Europe.
His comments also seemed to backup claims reported by the Wall Street Journal
over a week ago that both France
stand ready to provide up to $41 billion in bailout money provided the Greek
government stay on course to reduce its debt load.
Last week, the Euro turned its trend to up on the daily
chart after Greece
agreed to make massive budget cuts. This helped to instill a little confidence
in the countryâ€™s finances. In addition, a Greek 10-year bond auction went off
without a hitch, further indicating renewed confidence in Greeceâ€™s ability to recover from
its financial crisis.
The combination of fiscally responsible measures and the
technical change in trend is an indication that investors are getting
comfortable that Greeceâ€™s
problems are not going to spill over into other sovereign nations such as Portugal or Spain.
Adding further to speculation that the tide may be turning
up in the Euro was the news that net shorts dropped the week-ending March 2nd
in the CFTCâ€™s Commitment of Traders Report. This weekâ€™s net short figure showed
a drop to 66,770 open positions versus 71,623 from late February.There are still a tremendous amount of shorts
in the market, so this change most likely reflects light position paring.
The March Swiss Franc was up overnight. The Swiss Franc was
trading higher because the stronger Euro reduces the possibility of a Swiss
National Bank intervention. In addition, the SNB meets later this week on March
The March Canadian Dollar rallied as global investor demand
picked up for the Canadian Dollar. Traders were encouraged to buy the CAD due
to the relative safety of the Canadian banking system. In addition, last week
it was reported that Canadian GDP rose more than expected. The chart indicates
that .9777 is the next upside target. This would put the market at a price
which triggered a Bank of Canada verbal intervention in January.
The March British Pound made an attempt to rally overnight
before turning down during the New
York session. The British Pound continues to remain
the weakest currency because of the poor U.K. economy, the widening budget
deficit, a dovish monetary policy and political uncertainty.
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