equity markets are expected to open lower following a sell-off in Google stock
after the company reported better than expected earnings last night. This
morning the markets are expected to be driven by earnings reports from General
Electric (GE) and Bank of America (BAC).
This week, for the most part, traders have ignored the U.S. economic
reports and have instead chosen to focus on the slew of earnings reports. The
exception to this was Wednesdayâ€™s testimony by Fed Chairman Bernanke who green
lit the market by reiterating that interest rates will remain low for a
prolonged period. The long-term trend is expected to remain up until the Fed
begins to hike interest rates. Until then Wall Street will take advantage of
the bucket loads of almost free money swirling around the equity markets.
Traders should watch for a potential break late in the
session today when Kansas City Fed President Hoenig speaks. His comments broke
the market last week when he mentioned hiking interest rates and the potential
for a stock asset bubble.
June Treasury Bonds and Treasury Notes are called higher
this morning based on a strong overnight trade. Talk of low interest rates
earlier in the week and a favorable auction last week has lent strong support
to these contracts this week. T-Bond traders should watch for a breakout over
the last swing top at 116â€™22. This move will turn the short-term trend up with
the strong possibility of an acceleration to 116â€™29 to 117â€™06. Hoenigâ€™s mention
of a rate hike in his speech this afternoon could trigger a sell-off.
June Gold is trading slightly lower because of the stronger
Dollar, but the sell-off isnâ€™t that bad as bullish traders may be buying the
metal as a hedge against a collapse of the Euro. Traders have been showing
interest in gold by buying hard assets as a hedge against paper money. The
inability to break through $1159.60 could trigger a liquidation break late in
the session if an uptrending Gann angle at $1150.10 fails to hold.
The weaker Euro and stronger Dollar is pressuring June Crude
Oil overnight. Currently the chart formation has the appearance of a secondary
lower top. The bullish inventory report from earlier in the week is helping to
limit the break to the downside.Traders
should watch the Dollar and the Euro today for direction.
There are two economic reports today that may move the
Dollar. U.S. Housing Starts are expected to show a modest increase to 0.605M
following a drop to 0.575M in February. Traders are speculating that weather
improvements and the new spring building season may have lead to the increase
in the number of new units. The fundamentals remain weak however, based on the
supply of new and existing homes available. Foreclosures are also a major
problem.A lower than expected number
should weaken the Dollar as it would indicate lower interest rates.
U.S. Consumer Sentiment is expected to show a rise in March.
This monthâ€™s report is expected to come in at 75.0 versus a February figure of
73.6. The improving jobs picture apparently had a major influence on consumers.
Earlier this week it was reported that consumers spoke with their pocketbooks
after retail sales rose more than expected. This report is not likely to have
that big of an effect on the Dollar unless it is way of line with expectations.
Late in the trading session, Kansas City Federal Reserve
Bank President Thomas Hoenig speaks. In his 12:30 pm EDT speech, Hoenig is
expected to discuss the reasoning behind his demand that the Fed begin raising interest
rates. At the last two FOMC policy meetings, Hoenig was the lone dissenter.
Hoenig is also expected to warn about potential asset bubbles because of the
Fed stance to keep interest rates low for an â€śextended periodâ€ť. His speech may
catch traders off guard late in the trading session. Talk of higher interest
rates may spook the equity markets while driving traders into the U.S. Dollar.
The June Euro is trading lower ahead of the New York session. Last
nightâ€™s low at 1.3513 almost filled the gap left Sunday night at 1.3498. The
daily chart indicates that the break may not stop there with 1.3486 to 1.3438
the next potential downside target. With the main trend up on the daily chart,
donâ€™t be surprised by a technical bounce following a test of this retracement
Fundamentally, the Euro remains weak and faces a credibility
crisis because of the lingering sovereign debt problems in Greece. Although a financial aid
package was supposedly agreed upon on April 11th, traders are beginning to
realize that this may have been a short-term fix rather than a long-term
solution. With fiscal problems still lingering, the International Monetary fund
has agreed to meet with Greece
on Monday to discuss its current financial issues.
The spread between the Greek Bond and the German Bund
continues to be the best indicator that problems exist. Investors have driven
up the premium to buy Greek Bonds to over 400 basis points, or its highest
level since the rescue plan was announced. The consensus among traders is that the
proposed $61 billion aid package may not be enough to help Greece. Furthermore, traders are
now looking for the Euro Zoneâ€™s sovereign debt issues to begin spreading to Portugal.
Without a viable plan to fight the spread of additional fiscal problems, look
for hedge funds to continue to press the Euro lower as well as sell rallies.
The June British Pound is trading weaker overnight following
an election debate in the U.K.
which once again raised concerns about the possibility of a hung parliament.
Doubts are being raised by traders as to whether major parties involved in the
election have viable plans to contain the countryâ€™s growing budget deficit.
Many traders are also losing confidence in this current rally as they suspect
that long traders will begin liquidating their positions as the May 6th
election date draws near.
Technically, this market weakened overnight when an
uptrending Gann angle from the 1.4797 bottom at 1.5337 was violated. This move
indicates impending weakness with a strong possibility of a break to at least
1.5160 on April 20th.
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