Stock fell sharply lower after U.S. economic reports disappointed
investors and rumors circulated that the Feds were going to look for criminal
activity at Goldman Sachs.
Todayâ€™s break was initiated by a weaker than expected U.S.
GDP report. Although the report showed that the economy expanded by 3.2%,
economists were looking for an expansion of 3.3%.
Later, in the morning, a weaker than expected consumer
sentiment report helped to accelerate the break. Some traders feel that
although the EU and Greece
are expected to have a bailout deal worked out by the end of the week-end,
there is just too much risk in holding risky assets like stocks over the
week-end. Additional pressure is coming on chatter regarding a possible
criminal investigation of Goldman Sachs.
The Goldman news triggered a sell-off in the financial
sector. Traders fear that a Federal investigation of the firm could tie up the
companyâ€™s assets and hurt their market making business. In addition, investors
feel that the revelation of problems at the firm are likely to mean more
financial market regulations that could put restrictions on bank proprietary
The main trend in the June E-mini S&P 500 is down. Fridayâ€™s
failure to hold the 50% level at 1196.75 was an indication of weakness. It is
possible that a secondary higher top has been formed. The close under 1212.25 helped
form a weekly closing price reversal top which could set up the start of a 2 to
3 week break. The weekly chart indicates that 1134.00 is the next downside
Weaker equity markets helped drive June Treasury Bonds
higher in a flight to safety rally. This weekâ€™s better than expected Treasury
auction also contributed to the strength. The weekly chart indicates that a clean
upside breakout is taking place. The next upside objective is 119â€™16. Treasury
Notes and Bonds could both accelerate to the upside if problems continue to
escalate in Europe and investors continue to
dump stocks. Interest rates are usually a leading indicator. This weekâ€™s drop
in yields indicates that there may be some serious problems on the horizon.
The weaker Dollar triggered a breakout to the upside in June
Gold. Lower demand for equities also helped to boost gold along with lingering
fear that Euro Zone problems are going to continue to put pressure on the Euro.
Some gold traders still feel that Euro will be broken up if fiscal problems
escalate in Spain, Portugal and Ireland. The strong rise in gold
coupled with the sell-off in financial stocks is a sign of deepening concerns
about the global financial system. Late breaking news that three banks in Puerto Rico went under is likely to influence the trade
early next week.
Technically, the weekly breakout to the upside along with
increased momentum could mean a test of the contract high at $1230.00 is
possible next week.
The weaker Dollar and stronger Euro helped to buoy June
Crude Oil. This market bottomed earlier in the week at 81.29 just as it was
becoming apparent to investors that a bailout deal between Greece and the
EU may be reached by this week-end. Bullish traders feel that a stable Euro
will lead to increased demand for energy products. The oil spill in the Gulf of Mexico could become a bullish factor if it leads
to tighter regulation of even a shut-down of some wells. This would disrupt
supply which would mean more reliance on OPEC oil.
Despite signs of a bottom on the daily chart, the Euro
finished lower for the week. The daily chart is reflecting a short-covering
rally; the weekly chart is indicating that investors still lack the conviction
to turn the Euro into a buy.
On Friday the June Euro closed up but well off its high.
Although the EU feels that a bailout agreement with Greece will be reached this
week-end. Some traders feel that there is too much risk to hold a long position
until Monday. Most traders feel that more downside risk exists in the Euro
because of lingering problems in the Euro Zone with Spain,
Portugal and Ireland.
After an initial surge to the upside overnight, the June
British Pound broke from its high. Traders were buying in response to the
strong showing at the debate by the Conservative Party. Some traders felt that
the emergence of a leader less than a week before the May 6th election would
reduce the possibility of a hung parliament.
The British Pound began to weaken following the release of
the U.S. GDP report. Although this report showed the economy had expanded by
3.2%, it fell short of the expected retracement of 3.3%.For the week, the British Pound closed lower
while changing the trend to down. Expectations are for this market to sell-off
into the election with 1.5078 the next potential downside target.
Another victim of the drop in appetite for higher risk
assets was the Canadian Dollar. Fridayâ€™s break in the currency was triggered by
Thursdayâ€™s comments from the Bank of Canadaâ€™s Mark Carney. In what is amounting
to a â€śverbal interventionâ€ť, Carney said that the high priced currency could
have an impact on inflation and monetary policy. The Canadian Dollar stopped
going up on his commentary, indicating that the BoC may be in the market
attempting to curtail the Canadian Dollarâ€™s advance.
Technically, the June Canadian Dollar is threatening to
break hard to the downside. A break under the last main bottom at .9789 will
turn the main trend down.
The June Swiss Franc closed lower for the week after a break
to a 10-week low. The close back above the former bottom at .9185 was triggered
by the turnaround in the Euro. Swiss National Bank President Phillip Hildebrand
said that Europe must find a quick settlement
to Greek financial problems in order to return stability to the region. He also
has enormously benefited from currency stability over the past decade. Itâ€™s
obvious that a threat to this stability would pose big risks.â€ť
Hildebrandâ€™s comments signal that the SNB remains poised to
continue to intervene by selling Swiss Francs in order to defend its currencyâ€™s
stability and to protect the countryâ€™s export market. This means continue to sell
the Swissy on Euro weakness.
The June Japanese Yen closed flat for the week but higher on
Friday. After an early attempt to break to the downside failed, the Yen rallied
sharply higher as the stock market deteriorated. The strong close indicates
that further upside pressure is likely with 1.0749 the target. Watch for
strength early next week especially since the U.S. equity markets posted major
weekly closing price reversal tops. Traders are ignoring the weak Japanese
economy and turning their focus on an increase in demand for lower yielding
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