Stocks under Pressure as Investors Shed Risky Assets
The lack of major economic reports today means the direction
of the Dollar is likely to exert more influence on the U.S. equity
markets. With the Dollar up overnight because of risk aversion, traders are
selling equities. Yesterdayâ€™s tight trading range and lack of follow-through
during the New York
session may have been indications that the stock markets are overbought. The
daily March E-mini S&P chart suggests that a break through 1128.75 may
accelerate the move to the downside.
June Treasury Bonds are trading better overnight as traders
shift money out of higher risk assets and into the lower-yielding, lower risk
Treasuries. In addition, short-term support has been reached at a 50% level at
April Gold is feeling pressure because of the stronger
Dollar. In addition, a report that China may be buying less gold in
the future is hurting demand for the precious metal. This morning, gold is
testing minor support at $1117.20. A break through this level could trigger a
further break to $1110.40.
The strengthening Dollar and weaker demand for higher risk
commodities triggered a hard sell-off in June Crude Oil overnight. Overbought
conditions may also be attributing to this weakness. The daily chart indicates
that a key uptrending Gann angle has been broken. This could trigger the start
of a further decline to 79.50 over the near-term.
The U.S. Dollar is trading higher this morning against most
major currencies except the Japanese Yen as traders have turned against risk
and are seeking shelter in lower yielding assets. The overnight strength in the
Dollar is being attributed to heavy selling pressure on the March Euro and
March British Pound.
The Euro is down as traders are taking a more cautious view of
the Euro Region economy now that the fiscal problems in Greece have subsided. Traders are
citing the possibility of an uneven recovery in the economy as one of the
reasons for the weakness.They are
worried that the European Central Bank faces too many upcoming challenges
regarding growth and inflation to trigger a reasonable appreciation in the
Another concern for traders is the possibility that the
recent Greek budget cuts will fail to shore up their deficit situation. This is
why Greek officials are pushing for the European Union to provide backing in
the form of a bailout package should the need arise to support the Greek
economy.Yesterday, German Chancellor
Angela Merkel said that such a proposal is not on the table, citing an EU
agreement that prevents a bailout.
The overnight weakness indicates that traders have already
discounted last weekendâ€™s friendly comments from the French stating that the EU
stands ready to support Greece
if necessary. In addition, although net short positions in the recent CFTC
Commitment of Traders Report fell during the last week, last nightâ€™s sell-off
indicates there is still plenty of interest in the short side of the market
from larger well-funded hedge funds.
Today, Greek Prime Minister Papadreou meets with President
Obama. Heâ€™s not here to discuss the possibility of U.S.
aid, but instead wants the U.S.
regulators to open up an investigation into Euro market manipulation and
excessive speculation. The lack of any major economic news this morning could
mean that regulatory headlines could move the markets intraday.
The March British Pound is extending its weakness from
Monday after Fitch Ratings issued a cautious outlook for the U.K. economy.
Besides the possibility of a credit rating cut by the credit reporting
agencies, bearish traders are citing political uncertainty and a dovish stance
by the Bank of England as other reasons for the weakness.
Another reason for the recent decline in the British Pound
is the lack of trust with the Bank of England. Recently, BoE member Kate Barker
said that the economic recovery in the U.K. is â€śbroadly on trackâ€ť. She did
add that the economy faces a â€śbumpyâ€ť road because of high unemployment and
tight credit markets. Recent economic reports indicate that her assessment is a
This morning it was reported that the RICS House Price
Balance Index fell short of expectations. In addition, UK trade data was disappointing and
cast doubts over the economy recovery.
The renewal of risk aversion is helping to support the March
Japanese Yen this morning. Japanese investors are also becoming concerned that
the recent rise in the Japanese Yen will hurt its export market. The break in
the Euro is helping to pressure the March Swiss Franc. Investors are once again
becoming concerned that the Swiss National Bank may have to intervene to weaken
its currency versus the Euro. The SNB is mandated to protect its export market
which accounts for up to 50% of its total economy.
The shift in risk sentiment means less demand for commodity-linked
currencies such as the Canadian Dollar, Australian Dollar and New Zealand
Dollar. Lower gold and a huge overnight drop in crude oil are helping to weaken
the March Canadian Dollar. This break has also been triggered by grossly
The Australian Dollar is feeling downside pressure this
morning as traders dump higher yielding assets. Losses could be limited by the
news that the National Australia Bank Business Confidence Index rose 4 points
in February. Downside pressure is driving the New Zealand Dollar down once
again. Later this week, the Reserve Bank of New Zealand is expected to leave
its benchmark interest rate unchanged. The poor economy is likely to mean that
the RBNZ will not even consider a rate hike until late in the year or after the
economy shows sustained growth.
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