equity markets rallied to a new high for the session after the Fed left
interest rates unchanged at historically low levels and remained dovish in its
statement regarding the future of interest rate hikes.
Earlier in the session the stock indices bent a little bit but did not break
after the Euro broke sharply following an S&P Corp. downgrade of Spainâ€™s debt.
Although investors seem to be 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.
Technically, the June E-mini S&P 500 main trend turned down on the daily
chart when the market broke through the last main bottom at 1179.75. The lack
of follow-through after breaking this price indicates that there were more
buyers looking to enter than sellers looking to pressure the short-side. The
key will be what traders do when 1196.75 to 1201.50 is tested. If the market is
topping then sellers will step in and form a secondary lower top. If the market
is going higher then it should easily blow through this retracement zone.
June Treasury Bonds finished lower after tensions eased in Greece. Traders
took profits early in the session when it became apparent that the EU/IMF was
close to inking a 3-year deal with Greece to help with its debt
crisis. Although the Fed said rates would remain low for â€śan extended periodâ€ť,
traders took this to mean it is getting closer to hiking rates. In other words,
the Fed canâ€™t lower rates from where they are. Demand for higher yielding
assets kept the pressure on T-Bonds into the close.
June Gold traded higher despite the stronger Dollar. Investors were buying
gold on speculation of the demise of the Euro. Buyers were clearly taking hedge
protection against paper money in case the European debt problems begin to
spread to the U.K. and Japan. A weaker
Dollar is likely to underpin gold, however, if a bailout deal is approved
and the EU, traders may begin lifting long hedge positions, putting downside
pressure on precious metals.
June 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.
Technically, the daily closing price reversal in June Crude Oil could fuel
the start of a 2 to 3 day rally. The minimum upside objective is 83.46 which
has already been reached, followed by 83.97.
The June Euro tumbled to a new low for the year after Spainâ€™s debt
was downgraded to AA. Traders initially sold off the Euro in a knee-jerk
reaction, but selling pressure quickly dried up. Although the Euro reached a
new low for the year, the selling pressure was not as intense as Tuesdayâ€™s
reaction. This was because investors had already discounted the possibility of
After bottoming about mid-morning, trading stabilized in the Euro until the
early afternoon when the Federal Reserve released its policy statement. The
FOMC kept interest rates at historically low levels and left its somewhat
dovish statement intact. In other words, rates are to remain low for â€śan
extended periodâ€ť. Although the Fed sees improvements in the economy it still
feels that unemployment is a problem as well as tight consumer credit.
Furthermore it thinks the housing market can be improved. Once again the Fed
stated that inflation is expected to be â€śsubduedâ€ť. The Euroâ€™s rally accelerated
to the upside after the Fedâ€™s statement was digested.
Wednesdayâ€™s trading action seemed to be indicating that traders had faith
that a resolution between Greece
and the EU/IMF would be reached soon. This was probably the reason for the less
aggressive trading on the short-side. In fact, the way the market traded, it looks
as if bottom-pickers were stepping in. At the close, the Euro formed a closing
price reversal bottom which could lead to a 2 to 3 day rally and a retracement
Bearish traders should remain cautious at current levels so they donâ€™t get
caught in a massive short-covering rally. There are still 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 backing 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
Talk of a â€śfragileâ€ť economy and renewed concerns about the U.K. election
led to a hard sell-off in the June British Pound on Wednesday. Investors are
also concerned that the problems in the Euro Zone may soon spread to the U.K. This is
the main reason why traders are worried about the May 6th election.
With the election too close to call at this point in time, traders are
worried that the outcome may result in a hung parliament. If this occurs than
it is possible that political uncertainties may result in a failure to achieve
a balanced budget. This would cause more debt to be issued, leading to the
possibility that the U.K.
credit rating will be lowered. With an explosive situation brewing in Europe, it
would not take much for debt issue problems to escalate in the U.K.
The strong recovery in U.S.
equity markets helped pressure the June Japanese Yen. In addition, traders are
worried that Japanese debt may be next in line to be downgraded. Like certain Euro
Zone nations and the U.K., Japan has a
huge debt problem on its hands which could lead to a downgrade. Not only are
traders selling the Yen as a carry trade, but today it looked as if traders
were pressuring the Yen in anticipation of a debt rating downgrade.
Renewed interest in higher yielding assets and lower interest rates in the U.S. helped
drive the June Canadian Dollar higher. With the Bank of Canada already on
record stating that interest rates are going to move higher in June and the Fed
saying that U.S. rates will
remain low for â€śan extended periodâ€ť, the interest rate advantage has shifted to
This is the primary reason for the strength in the Canadian Dollar on
Wednesday. Longer-term traders should continue to support the Canadian Dollar
because of the strengthening Canadian economy and the likelihood of a series of
interest rate hikes over the next several months.
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