The plunging Euro and British Pound helped drive traders out
of risky assets early Sunday night sending U.S. equity markets lower. Shortly
before the U.S. Forex opening, the recovery in both of these currencies from
their lows has helped to push stocks higher.
Stocks took most of its cues from the Euro on Sunday night
as this currency broke through the so-called â€śLehman Brothers Lowâ€ť at 1.2329.
At the time this low was made in 2008, the world was going through a credit
crisis. Nonetheless, a break through this level may lead to a psychological
breakdown in the equities as it will mean that the global economy is well on
its way to repeating the same mistakes which triggered the start of the
sell-off in late 2008 and early 2009.
The short-term main range in the June E-mini S&P 500 is
1056.00 to 1174.75. The retracement zone inside this range is 1115.50 to
1101.50. Last nightâ€™s break came close to but did not test this zone which
means that despite the overnight comeback, there is still downside potential.
The downside target on the June E-mini NASDAQ chart is
1856.00 to 1826.50. Watch for a potential test of 10378 to 10251 in the June
With equity prices falling and fear spreading across Europe, traders took a little protection in the June Treasury
markets Sunday night, but this market turned lower once the Euro rebounded off
its low and stocks turned positive. The short-term upside target in this
contract is 122â€™05 to 122â€™23. Last night the test of the upper end of this
range was met with selling pressure, leading to the call for a lower opening
The falling Euro and the strong Dollar did not trigger a
breakout rally in June Gold last night as expected. This came as a surprise, but
it could be related to margin calls in the equity markets. For weeks, gold has
become the safe haven currency. During the Greece financial crisis, money was
flooding into gold, driving it to an all-time high. At this time, Gold is
barely holding onto its gains which could be a reflection of margin calls
hitting stock traders. Traders often begin liquidating speculative positions to
meet margin calls in investments.
Technically, June Gold made a daily closing price reversal
top at $1249.70. Although it doesnâ€™t appear that the trend is getting ready to
turn down, this pattern may trigger a correction to $1203.00 to $1191.90.
June Crude Oil continued lower overnight, breaking through
the February bottom at 70.75. Bearish traders are becoming more confident that
the problems in the Euro Zone are going to slow down demand for crude oil. Last
weekâ€™s Energy Information Administration report also suggested that rising
inventories are contributing to the current weakness.Oversold conditions may lead to a short-covering
rally this morning, but it is going to take a lot to turn the main trend back
The June Euro touched its lowest level since 2006 overnight
as investors continued to pull out of the currency on the fear that political
and economic problems would lead to a collapse of the Euro Zone economy. Last
nightâ€™s action took out the so-called â€śLehman Brothers Low at 1.2329 triggering
stops and attracting fresh selling pressure. This support was established at
the height of the global credit crisis and marks a time when a global financial
disaster was avoided.
Although some feel that the worldâ€™s financial system is
better prepared for a credit shock than it was back in 2008, the break through
this level is likely to have psychological ramifications as well as symbolic
meaning. It will be used as a benchmark among global investors who will
question whether the world has learned anything following one of the greatest
financial meltdownâ€™s in history.
Besides the risk of sovereign debt default, investors are
now becoming concerned about the lack of activity and the inaction from the
European governments. Once again investors are asking the question â€śwhere is
the union in the European Unionâ€ť.
The inability to stop the slide in the Euro by pumping $1
trillion into the economy with basically debt on top of debt has convinced
investors that the EU has and had no plan to prevent the kind of currency
slaughter taking place at this time.Investors have grown weary of the reactive moves by the governments and
want to see more proactive action.
From the start investors have been asking for clarity from
the EU. No one wants to see a currency collapse, but without a firm plan in
place investors have had no options to consider except to sell the Euro.
At this time emotions are running high in the Euro Zone as
it is becoming clearer that the financial cuts necessary to make Europe financially sound will have huge global
ramifications. Even former Federal Reserve Chairman Paul Volcker has a gloomy
outlook for the situation. Last Thursday during a stop in London he said â€śYou have the great problem of
a potential disintegration of the Euro. The essential element of discipline in
economic policy and in fiscal policy that was hoped for has so far not been
rewarded in some countries.â€ť
As support continues to erode for the Euro discussions will
increase as to how it will survive when there continues to be such a huge
disparity between those countries that have and those nations that have not.
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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
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15:30 US- EIA Crude Thu 21 Dec
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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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