Wednesday April 28, 2010 - 17:58:45 GMT
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Stock Traders Shrug off Spain Downgrade; Firm before FOMC Meeting
U.S. equity markets bent a little bit but did not break after the
Euro tumbled following an S&P Corp. downgrade of Spainâ€™s debt.
Although investors are a little more cautious about holding long
positions at current levels, they donâ€™t seem as worried about the
worsening situation in the Europe as they did on Tuesday. This could be
because they feel a solution is close due to the on-going dialogue
between Greece and the EU/IMF.
Traders may be holding the market
up ahead of the Fedâ€™s FOMC announcement this afternoon. Although this
policy statement is not expected to reveal any surprises, traders seem
to be standing aside today which could also be the reason for the muted
reaction from the Spain downgrade news.
June Treasury Bonds are
trading lower. Todayâ€™s move is inside yesterdayâ€™s wide range meaning
that traders are a little uncertain about how to play the Euro
situation. Investors definitely donâ€™t feel as worried about risk as
they were on Tuesday.
Todayâ€™s Fed report could move the Bonds
in a big way to the downside. Traders will be watching the language of
the report to see if there is a hint of an interest rate hike. If the
language turns out to be more hawkish then expected, look for T-Bonds
June Gold is trading higher despite the stronger
Dollar. Investors are buying gold on speculation of the demise of the
Euro. Buyers are clearly taking hedge protection against paper money in
case the European debt problems begin to spread to the U.K. and Japan.
Crude Oil traded weaker this morning after the Euro broke on the Spain
downgrade. Bearish traders believe the Greek debt problems will slow
down growth in the Euro Zone and consequently hurt demand for energy
products. The inability to crash the Euro today and optimism that a
solution will be found regarding Greece, helped turn crude oil to the
upside. Watch for a short-covering rally if the Euro moves higher into
After a higher New York opening the Euro reversed
its course after the S&P Corp. downgraded Spain to AA status.
Although the Euro reached a new low for the year, the selling pressure
was not as intense as Tuesdayâ€™s. This could be because traders had
Todayâ€™s action seems to be indicating that traders
have faith that a resolution between Greece and the EU/IMF will be
reached soon. This could be the reason for less aggressive trading on
the short-side. In fact, the way the market is trading going into the
mid-session, it looks as if bottom-pickers are stepping in and may send
the Euro higher before the end of the day.
should be cautious at current levels so they donâ€™t get caught in a
closing price reversal bottom formation. There are plenty of shorts
still in the game, but it isnâ€™t going to take much to encourage the
weaker shorts to cover fresh losing positions.
It looks as if
traders are going to back away from aggressively shorting the Euro as
long as the EU/IMF is still working out the details of the bailout. If
anything should happen during the negotiations and talks were called
off, then look for the Euro to plunge. As long as the bailout dialogue
is open, it appears as if traders have priced in the worse case
scenario for the time being.
Look for the Fed to leave interest
rates unchanged at current historically low levels. Traders should pay
attention to the language of the policy statement. Although the Fed is
expected to say that rates will remain low for â€śan extended periodâ€ť
some believe they may soften the tone a bit. This slight shift in
language could help strengthen the Dollar into the close.
is also expected to say that unemployment and housing remain a concern
as well as the lack of bank lending. Also look for the FOMC policy
statement to say that the economy is expanding and that inflation is
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