Demand for Higher Risk; Bullish Outlook for Economy Boosts Stocks
Demand for higher risk assets and a bullish outlook for the
economy helped drive U.S.
equity prices higher on Monday. Stocks opened higher and held on to gains after
getting a boost from better than expected ISM Non-Manufacturing data and an
unexpected positive change in pending home sales.
Although stocks were firm, the rally was a grind. Many
traders felt overbought conditions triggered the labored rally, but at this
time there is no alternative to the yields that stocks have been delivering.
Although this market is still trending, gains could be limited by higher
interest rate worries.
There is no technical significance of an 11,000 Dow, but the
market did hesitate as it neared this price level today. Psychologically,
crossing this barrier this week could trigger a surge to the upside as it will
give traders a confidence boost.
The stronger U.S.
economic data helped to pressure June Treasury Bonds and June Treasury Notes.
Yields are rising which could encourage equity traders to lighten up their
positions. We could be looking at the start of a bear market in Treasuries.
The weaker Dollar triggered a rally in June Gold and June
Crude Oil. Generally speaking, when the Dollar weakens, demand goes up for
Gold closed within striking distance of the last swing top
on the daily chart at $1133.90. Based on the main range of $1229.00 to
$1044.50, traders should look for a rally into the retracement zone at $1136.75
The U.S. Dollar opened down and remains lower against most
major currencies as traders seem to be reassessing Fridayâ€™s employment report
while brushing aside todayâ€™s jump in ISM Non-Manufacturing and the unexpected
surge in pending home sales.
The U.S. Dollar opened down and remained lower against most
major Forex markets as traders seemed to reassess Fridayâ€™s employment report
while brushing aside todayâ€™s jump in ISM Non-Manufacturing and the unexpected
surge in pending home sales. Instead of supporting the Dollar because of its
traditional relationship with the economy, investors instead took interest in
stocks and Dollar-denominated commodities.
Some traders blamed the Treasuryâ€™s decision to postpone a
ruling on whether China
manipulates its currency for the weakness in the Dollar. They felt that the
move was designed to defuse political tensions enough for the Chinese
government to allow the Yuan to strengthen.
The Dollar seemed to hold its ground versus the Euro. At the
close the June Euro finished lower. The strength in the U.S. economy was enough to weaken
the Euro substantially along with the developing lack of confidence in the
Greek financial bailout proposal. Traders may also be reluctant to take a
position in the Euro ahead of Wednesdayâ€™s European Central Bank meeting. The
consensus believes the ECB will leave interest rates unchanged and hint that
rates will remain low until the Euro Zone recovery is sustainable.
The June British Pound closed better, but still had trouble
with a key 50% level at 1.5294. Although recent reports have shown that the U.K.
economy is growing, doubt continues to linger about the outcome of the election
and the potential hung parliament that could hamper the countryâ€™s effort to
reduce its budge deficit.
The June Swiss Franc traded in a tight range as traders
await direction from the Euro. Traders are leaning a bit to the downside in
anticipation of another intervention by the Swiss National Bank should the Euro
weaken. Trading could be tight until Wednesday when the ECB announces its
monetary policy decision.
Early Sunday night, the June Japanese Yen broke to its
lowest level since August 2009.Oversold
conditions and position squaring ahead of Tuesdayâ€™s Bank of Japan meeting
helped form a daily closing price reversal bottom. This formation could trigger
a 50% correction of the last swing or a two to three day correction.
Stronger gold and crude oil helped support the June Canadian
Dollar. Higher commodity prices and the outlook for a better economy helped to
drive this pair toward parity. Traders also priced in the strong possibility
the Bank of Canada will raise interest rates before the Federal Reserve.
Foreign money is flowing into the Canadian economy because of the strong
natural resource market and the sound banking system.
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POTENTIAL PRICE RISK: HIGH to Medium- Wed --14:15 GMT-- US- Industrial Production
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