The stronger U.S. Dollar is helping to put pressure on U.S.
equity markets overnight. Concerns about Greek financial problems are
pressuring the Euro, leading to a decline in demand for higher risk assets. Traders
appear to be lightening up their long equity positions ahead of todayâ€™s opening
despite the possibility of stronger than expected corporate earnings reports.
Yesterday, Fed Chairman Bernanke ignited a rally in the
equity markets with his dovish assessment of the economic recovery and outlook
for interest rates. Like it he did several times before, Bernanke basically
gave equity traders the green light to continue to buy stocks. This is old
news, however, as traders will now have to turn their focus on the reigniting
of fiscal problems in Greece.
Rather than try to sort out the details, investors may choose to take the easy
route and lighten up their long positions.
June Treasury Bonds are trading better this morning, buoyed
by weaker equity markets. The overnight rally in the T-bonds appears to be a
safety play as nervous traders seek to park funds in lower yielding assets. The
charts indicate that 115â€™29 is going to act as a pivot. Holding this price
could help trigger a short-term rally. Falling back below this price could
trigger a break to 115â€™14.
June Gold is trading a little weaker overnight mostly
because of the stronger Dollar. Losses may be limited if the Greek sovereign
debt situation begins to escalate. Traders may begin to support the gold market
if it looks like the existence of the Euro will be threatened. Gold traders may
seek protection in hard assets rather than paper currencies.
The falling Euro is putting pressure on June Crude Oil.
Yesterday, crude oil rose because of the weaker Dollar and a report that
inventories had unexpectedly fallen. Technically, this market may be forming a
secondary lower top which could mean the start of a short-term sell-off.
Last night China
reported that its Gross Domestic Product grew 11.9 percent from a year ago.
This was slightly better than the median guesses of 11.7 percent.The news, that Chinaâ€™s economy accelerated more
than expected in the first quarter, raised concerns that it may be overheating,
prompting more talk of a possible interest rate like. Traders are also
increasing speculation that China
may revalue its currency as soon as next week. If this takes place, look for
the Japanese Yen to strengthen and the U.S. Dollar to weaken.
To recap Wednesdayâ€™s trading activity, the Dollar lost
ground across the board after Fed Chairman Ben Bernankeâ€™s dovish testimony.
Testifying before the Joint Economic Committee, Bernanke reiterated the Fedâ€™s
stance that interest rates would remain low for an â€śextended periodâ€ť. He also
said â€śthe income data suggest that growth in private final demand will be
sufficient to promote a moderate economic recovery in coming quarterâ€ť. Finally,
he added that â€śsignificant restraints on the pace of the recovery remain
including weakness in both residential and nonresidential construction and the
poor fiscal condition of many state and local governments.â€ť In summary,
Bernanke weakened the Dollar by stating that the recovery will continue to be
modest while indicating the Fed has no intention of changing its language regarding
interest rates in its FOMC statements.
The June Euro is selling off sharply overnight. Market
participants are feeling jittery again because of concerns over Greece.
Investors are worried that the IMF/EU $61 billion financial aid plan will not
be enough to help the Greek economy and restore confidence in the Euro. At this
time, the Euro is facing serious credibility issues.
High premiums demanded by investors on Greek bonds rose 400
basis points above the German Bund for the first time since the rescue plan was
announced on April 11th. This is the clearest sign that investors are becoming
worried again. In addition, after three tries, the Euro has been unable to take
out the high reached Sunday night at 1.3691. Hedge funds continue to be short
and appear to be adding to their positions on each rally.
At this time, the course of the Euro remains weak. Over the
next week, several European Union nations will be meeting to approve their
contributions to the EU bailout plan. This voting process could be another
source of turmoil for the Euro. Not only will these nations have to put up the
money to back Greece, but
they may have to begin discussions about the possibility of similar problems
spreading to Portugal.
Now that traders have had almost a week to digest the EU
rescue package, a consensus is building which believes that this plan was
nothing more than a short-term fix and that long-term problems still exist.
Some sources say the key to a long-term solution to the sovereign debt problems
in the EU sits firmly on Germany.
Pressure is mounting on Germany to loosen up a bit and make it easier for
struggling nations to get the aid they need to survive while simultaneously
developing a plan to address financial aid issues which may arise in the
The June British Pound traded higher early in the trading
session after a report showed the opposition Conservative Partyâ€™s lead over the
Labor Party widened, easing concerns that the May 6th election will produce a
hung parliament. Traders had been pressuring the British Pound lately because
of concerns that a hung parliament would result in a government too weak to
tackle the U.K.â€™s
huge budget deficit.
Traders are also beginning to doubt the viability of the
current rally. Speculation is building that bullish traders will begin to
liquidate their long positions ahead of the election. Technically, the charts
indicate this market may accelerate to the downside if uptrending Gann angle
support at 1.5397 is violated today. The most likely downside target is 1.5160
on April 20th.
News that Chinaâ€™s
GDP was up slightly more than expected during the first quarter is helping to underpin
the June Japanese Yen. Additional support is being provided by traders leaving
the higher risk U.S.
equity markets. Technically, the charts indicate that upside momentum could
take this market to 1.0853 over the near-term. Traders should also note that
the general consensus suggests that the Japanese Yen is likely to gain when China
decides to revalue its currency.
A drop in demand for higher yielding assets is helping to pressure
the June Canadian Dollar overnight. The short-term picture indicates the
possibility of a profit-taking break. Traders may also be lightening up
positions ahead of next weekâ€™s Bank of Canada meeting on April 20th.
For over a year, Bank of Canada Governor Mark Carney has
pledged to keep interest rates at a record low of 0.25% through June. Canadian
financial markets are indicating, however, that rates may rise as early as June
1. This helped rally the June Canadian Dollar above parity recently.The bigger picture suggests the Canadian
Dollar is likely to continue to rise because of the stronger-than-expected
economic recovery and expectations for interest rate increases.
Forex Trading News
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Mon 18 Dec
10:00 EZ- final HICP Tue 19 Dec
09:00 DE- IFO Survey
13:30 US- Housing Starts/Permits
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
POTENTIAL PRICE RISK: Medium Mon--10:00 GMT-- EZ- final November HICP. flash data are rarely changed.
POTENTIAL PRICE RISK: HIGH- Medium Tue --09:00 GMT-- DE- IFO Survey. Key report but usually not a market-mover
POTENTIAL PRICE RISK: HIGH- Medium- Tue --13:30 GMT-- US- Housing Starts and Permits. Leading indicators of activity
POTENTIAL PRICE RISK: HIGH-Medium- Wed --15:00-- US- Existing Homes Sales. Top Housing statistic
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