June E-mini Poised to Test 50% Retracement Level at 1105.75
equity markets finished sharply higher and are now in positions to test major
retracements zones which will indicate whether the uptrend is getting ready to
resume or if a new bear market is forming. The fact that investors were willing
to buy strength on Thursday could be a clue that fresh money is coming into the
The June E-mini S&P 500 closed in a position to test a
key retracement zone at 1105.75 to 1122.00. The June E-mini NASDAQ is testing 1867.75
overnight with 1894.50 its next upside objective. Finally the June E-mini Dow
is setup for a further rally to a 50% retracement level at 10337.
The catalyst behind the rise in equity markets beside
short-covering is optimism about the U.S. economy and an easing of
tensions in the Euro Zone.
The surge in equity markets pressured the September Treasury
Bonds on Thursday. Investors liquidated flight-to-safety positions as demand rose
for higher yielding assets. The daily chart indicates a potential retracement
to 119â€™22. Look for more downside pressure as long as investors continue to be
attracted to stocks.
The easing of tensions in the Euro Zone and greater demand
for risk coupled with oversold conditions helped to drive September Crude Oil
higher. A new main bottom has been formed at 69.62. Regaining and holding above
a 50% level at 72.16 also helped to underpin this market. Upside momentum is
strong, but the main trend remains down. There is an outside chance that this
market may rally to 80.88 over the near-term.
August Gold traded lower after failing to take out a .618
retracement level at $1219.50. This move completes a retracement of the
$1251.40 to $1168.00 range. Despite the falling Dollar, hedge position liquidation
is pressuring gold. A break under $1209.70 is likely to trigger an acceleration
to the downside.
The U.S. Dollar traded sharply lower on Thursday, giving the
first indication in weeks that the event driven rally may be coming to an end.
Pressure was on the Dollar all day led by the strong turnaround in the Euro.
Additional pressure came from increased interest in stocks and commodities.
Technically, overbought conditions also contributed to the Dollarâ€™s weakness.
The current chart pattern suggests the formation of a possible double-top with
a confirmation set to take place when this index takes out the last main bottom
Easing tensions in the Euro Zone helped to boost demand for
higher risk assets on Thursday. Since last week, the Euro has been trying to form
a bottom but has been met by both fundamental and technical obstacles in the
process. On Wednesday, rumors that China was re-evaluating its
Euro-denominated bond portfolio sent the single-currency lower along with crude
oil and stock indices. Overnight trading was another story however.
Wednesday night Chinaâ€™s foreign exchange reserves
manager denied a news report that it was considering the sale of some of its
holdings of Euro-denominated bonds.This
helped the Euro rebound, sending the Dollar lower against most currency-linked
commodities. With the Dollar trading lower, demand for higher risk assets
Stronger demand for higher yielding assets also helped to
drive up the commodity-linked Australian, New Zealand and Canadian Dollars
while pressuring the lower-yielding Japanese Yen.
The June Euro was firm all day. This morningâ€™s rally drove
the Euro into a Fibonacci retracement level at 1.2345. Additional resistance
was coming in at a downtrending angle at 1.2371. Regaining both of these prices
could trigger a further rally to the 50% price at 1.2407.
Regaining the retracement zone is the first step in the
bottoming process for the Euro. The next step will be crossing a mains swing
top. At this time the main trend remains down until the last swing top at
1.2671 is violated.
The June British Pound moved higher and away from the
support base it has been building over the last five days. Based on the
short-term range of 1.5391 to 1.4229, traders should look for a near-term
retracement to 1.4810 to 1.4947. A more optimistic view of the financial
situation in the Euro Zone and acceptance of some of the proposed austerity
measures by the newly formed U.K.
government are acting as catalysts for the current developing strength.
The June Swiss Franc traded higher after confirming its
closing price reversal bottom at .8562. Upside momentum is building which could
drive this market into the retracement zone at .8862 to .8933. A easing of
pressure on the Euro is helping to trigger the rally in the Swiss Franc.
Traders feel that a rally in the Euro will allow the Swiss National Bank to
ease up on its constant intervention in the market.
Increased demand for higher yielding assets helped to
pressure the June Japanese Yen. Trading has been quiet lately indicating
impending volatility. Watch for a surge in U.S. equities to trigger a quick
break back to 1.0954 to 1.0854 over the near-term. As investor appetite for
risk grows they begin to favor a strategy which involves borrowing in Japanese
Yen to buy other higher risk assets such as U.S. stocks. In order to do this,
they must sell the Yen and buy the Dollar.
Strong crude oil helped to drive the June Canadian Dollar
higher. Once again this market rejected the former bottom at .9293. Upside
momentum drove this market to a 50% level at .9552. If momentum continues to
grow and crude oil and stocks continue to rise, then look for further strength
to .9632 over the near-term.
Barring any fresh bearish news out of the Euro Zone or any
threats from China
to stop investing in Euro bonds, it looks as if the much awaited profit-taking
break in the U.S. Dollar has begun. Although the main trend is up, it isnâ€™t
going to take much to weaken the Dollar. Extremely oversold conditions in
foreign currencies and nervous short traders could turn the heat up on the
Dollar rather quickly.
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