A stronger Euro overnight is helping to drive up demand for
risky assets, sending U.S.
equity markets higher before the opening. The ability to regain the
psychological 1.20 price level triggered short-covering rallies in the global
equity market, leading to the call for higher openings in New York this morning.
The E-mini S&P 500 plunged from its high late in the
session on Wednesday after testing a short-term retracement level at
1074.50.Increased demand for higher
risk assets helped drive up the equity markets early, but comments from Fed
Chairman Bernanke and less than stellar economic data from the Fedâ€™s Beige Book
encouraged investors to take profits, driving the index lower into the close.
Despite the early strength in the indices throughout the
first half of the session, traders remained cautious about the move, watching
the Euro for direction. Once the Euro broke through the psychological 1.20
price level, traders turned bearish, accelerating the break to the downside.
Technically the June E-mini S&P 500 confirmed Tuesdayâ€™s
daily closing price reversal bottom but ran into resistance at a short-term 50%
price level at 1074.50. The key support level to watch until June 14th
is 1045.00. A close under this price could trigger the start of a break to
1004.00 by June 23rd. As long as 1045.00 holds over the near-term,
the S&P 500 could take another run at 1074.50, then perhaps 1082.25.
September Treasury Bonds are called lower this morning.
Increased appetite for risk is helping to drive investors out of Treasuries.
Additional pressure is coming from the thought of additional supply this
morning as the Treasury is set to hold another debt auction. A break under
123â€™22 could lead to an acceleration to the downside especially if stocks begin
to mount a strong rally.
T-Bonds posted a strong recovery into the close on Wednesday
due to the weakness in the equity markets. Early during yesterdayâ€™s session,
the T-Bonds were trading weaker because of the stronger equity markets and the
$21 billion U.S. Treasury Note debt sale. There is was also speculation that
the Fed may be preparing to raise interest rates. After the Beige Book showed
only a moderate recovery taking place, traders drove up T-Bonds on the thought
that the economy was too weak for the Fed to follow-through on its promise to
begin tightening rates sooner than expected.
Technically, the T-Bonds found support at a 50% level at
123â€™22 before the late session break in U.S. equity markets helped pare
losses. This price is most important to the structure of the market at this
Demand for equities is helping to drive down August Gold as
the two markets compete for investment dollars. A break under a 50% level at
$1226.30 will be the first sign of weakness, setting up a further decline to
the next support level at $1219.64. A strong surge in equity markets today will
likely keep downside pressure on gold throughout the day.
On Wednesday August Gold traded sharply lower earlier in the
trading session after investors took profits after the recent run-up because of
greater demand for equity prices. Technically this market stopped inside a
retracement zone at $1226.30 to $1219.70. A late session break in stocks helped
gold pare its earlier session losses, sending the metal higher into the close.
Watch the equity markets this week for direction. Gold seems to be a little
more sensitive to stock market movement rather than the Dollar at this time.
The stronger Euro and equity markets are helping to support
September Crude Oil this morning. The divergence of this market away from the
Euro was the first sign of a developing bottom. Look for upside momentum to
take this market through the last swing top at 77.84. A break through this
price will turn the main trend to up.
Fundamentally, higher stock prices helped underpin crude oil
most of the day on Wednesday. The late session sell-off in the equity markets
had very little effect on crude into the close. This could be a sign that the
break in equities may have been over-extended. Additional support came from a
weekly report showing that inventories had dropped more than expected. Look for
a drive to at least 78.00 unless 73.64 fails to hold as support.
The Dollar is trading weaker across the board this morning.
Appetite for risky assets is up driving up the commodity-linked currencies. The
inability to break the Euro after Wednesdayâ€™s hard sell-off is also being seen
as a positive development.
Some traders attributed Wednesdayâ€™s late session break to
position evening ahead of the European Central Bankâ€™s policy meeting today.
Although the ECB is expected to leave interest rates unchanged, investors are
worried about its statement and the post-meeting comments from ECB President
Trichet. The statement is expected to contain bearish talk about the near-term
growth of the Euro Zone economy. Trichet is expected, however, to sound more
upbeat as he tries to unite the Euro Zone nations.
From a technical perspective, the ability to regain the 1.20
psychological support level is helping to increase demand for higher yielding
Higher equity and crude oil markets are helping the Euro
this morning also. In addition, traders were a little more optimistic about the
survivability of the Euro after the European Union finalized its rescue plan.
Although sovereign debt issues remain the major concern, short traders felt it
was necessary to pare positions on this news.
Technically the Euro is still in a downtrend, but the charts
indicate there is room to the upside should the current weakness prove to be
only a retracement and test of the bottom at 1.1876. Recently hedge funds and
large speculators have been shying away from selling weakness and have been
more comfortable with selling retracements. If the bottom at 1.1876 is defended
on this current break, then look for the start of a rally back to the nearest
retracement zone. Watch for renewed selling pressure once the Euro completes
its retracement to 1.2164 to 1.2233.
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