U.S. Stock Markets finish Mixed; Watch for Short-Covering Rally
equity markets were under pressure at the mid-session but mounted a strong
short-covering rally into the close. The turnaround to the upside in the Euro
was the catalyst behind the rally. The June E-mini NASDAQ managed to close
higher with the Dow and S&P 500 trailing closely.
Investors are concerned that the weakness in the Euro Zone
will have a negative effect on future corporate profits. Early in the session
on Monday, the June E-mini S&P 500 tested a key 50% level at 1115.50.
Although downside momentum took the market through this price level, the
mid-session recovery at this price helped trigger a short-covering rally into
The turnaround in the equity markets helped pressure June
Treasury Bonds. Overbought conditions and oversupply could be the main reason
for the weakness. Retracement zone resistance is at 122â€™05 to 122â€™22. This area
stopped the rally today. The daily chart indicates that a move to 119â€™12 is
possible over the near-term.
June Gold traded flat to lower despite the stronger Dollar.
Last Fridayâ€™s closing price reversal top helped to limit upside action. The
chart pattern suggests that once this reversal top is confirmed, the market
could correct back to $1203.00 to $1192.00.
The weak Euro and the prospects of lower demand for crude
oil helped drive June Crude Oil under the February bottom at 70.75. The close
under this level is likely to keep the downside pressure on this market. Regaining
70.75 could trigger the start of a short-covering rally.
Oversold conditions and the lack of fresh bearish news
helped the June Euro turn around and close higher for the day. Fundamentally,
nothing happened to change the minds of traders. Investors are still concerned
that the European Union is not doing enough to fix the financial problems in
the Euro Zone. The lack of confidence in the European Union continues to remain
the major reason behind the selling. Investors want clarity not just ideas from
the EU. This would include the implementation of new austerity measures by the
five countries at the center of the financial problems: Portugal, Italy,
Ireland, Greece and Spain.
Technically, the Euro made a daily closing price reversal
bottom at 1.2233. A confirmation of this formation on Tuesday could trigger the
start of a rally to 1.2787 to 1.2918. A rally into this zone will not be a
change in trend, but is likely to attract fresh selling pressure.
The June Swiss Franc posted a daily closing price reversal bottom.
This type of formation sets up a possible correction back to .8952 to .9002.
The direction of the Euro will dictate the movement in the Dollar/Swiss.
The recent divestment out of the Euro is putting strong
appreciation pressure on the Swiss Franc. The Swiss National Bank fears that
continuous selling pressure will hurt price stability and put the Swiss economy
at risk. The main concern is damage to the export market will stall the
economy. SNB President promised to act in a decisive manner which could mean another
round of interventions.
The June British Pound was under pressure throughout the
day, but still managed to close off its low. Bearish talk was circulating that
the previous government pushed through spending measures which will make the
new governmentâ€™s attempts to cut the U.K. deficit and balance the budget
more difficult. Pressure is likely to remain on the British Pound as the new
government is likely to propose severe budget cuts and tax increases which
could put a strain on the economy.
Like the Euro and Swiss Franc, conditions are oversold which
could mean the start of a 2 to 3 day short-covering rally. Unless there is
fresh news regarding the economy, traders should be careful about shorting the
Pound at current levels.
A late session turnaround in the U.S. equity markets helped push the
June Japanese Yen higher. Earlier in the session, the Dollar/Yen was under
pressure because of risk concerns. Once the Euro and stock markets bottomed,
traders started to pare their positions in the lower yielding Japanese Yen.
The June Canadian Dollar fell Monday morning but ran into support
at a 50% price level at .9592. The minor reversal to the upside indicates that
a 2 to 3 day rally is likely. The next upside target is .9735 to .9772. A
change in investor sentiment is should help the Canadian Dollar. Traders should
watch crude oil and equity prices for direction. Greater demand for risk means
greater demand for the Canadian Dollar.
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