Demand for Higher Risk Currencies Underpin Equities
The U.S. Dollar is trading weaker against most majors this
morning ahead of this afternoonâ€™s Fed announcement. Volume is expected to be
light, but traders should expect increased volatility because of thin trading
The big mover overnight is the September British Pound.
After an early sell-off on Tuesday morning, the Sterling
righted itself following the U.K.
budget announcement. Going into the meeting there appeared to be uncertainty.
Following the announcement, investors seemed optimistic about the new
governmentâ€™s ability to instill austere financial measures to solidify the
Fundamentally the Sterling
received a boost overnight after minutes from the Bank of Englandâ€™s latest
interest rate policy meeting showed one member wanted to raise rates.
Technically the British Pound survived a test of a 50% level
at 1.4686. This morningâ€™s strong rally has created enough upside momentum to
challenge a .618 level at 1.4947. A breakout over this level is likely to
trigger an acceleration to the upside.
This morning the September Euro is trading slightly better
in limited action. On Tuesday, the September Euro was under pressure most of
the day following Mondayâ€™s technical closing price reversal top and renewed
European banking concerns following the downgrading of BNP Paribas earlier in
Traders took profits on long positions and shorts reapplied
pressure following a 10 day rally which saw the single-currency rally from
1.1876 to 1.2467. Investors are concerned that the Fitch downgrading of BNP
Paribas may only be the tip of the iceberg as several other banks may be inline
to accept a similar downgrade.
Technically the Euro confirmed Mondayâ€™s closing price
reversal top and is well on its way to reaching its first objective at 1.2171,
followed by 1.2102. This will be a critical test for the Euro. Bullish traders
will try to build a secondary higher bottom in this retracement zone. If the
recent rally was truly only short-covering then this area will be meaningless
as renewed short-selling will dominate the trade.
Stocks are expected to open flat to better. Traders are
taking a cautious approach to the markets this morning ahead of this
afternoonâ€™s Fed announcement. Under pinning the market is stronger demand for
equity markets broke sharply on Tuesday after disappointing housing data
encouraged profit-taking after the recent strong run-up and investors expressed
worry about the strength of the economic recovery. The weakness in the equity
markets was broad-based as all sectors including industrial, energy and
consumer were hit with selling pressure. Strength in regional manufacturing may
have helped limit losses.
The stock market was under pressure overnight Tuesday
following a technical reversal top on Monday and renewed concerns about the
European banking industry. Investors were also leaning on the market on
speculation that Chinaâ€™s
central bank was going to intervene to slow down the pace of the Yuanâ€™s rise.
This further aggravated investors who believed that Chinaâ€™s
decision to allow the Yuan to rise against the Dollar was going to mean bigger
profits for U.S.
exporters and manufacturers.
Investors tried to hold the equity markets in check early in
the trading session but bids were pulled and selling pressure increased when
the U.S. announced that
sales of previously owned homes in the U.S. slipped 2.2% in May to a 5.66
million annual rate. Because the decline came following two months of
increases, traders were surprised by the news. Many blamed the end of the
governmentâ€™s tax incentive program for first time buyers for the loss.
Continuing to weigh on traderâ€™s minds was the debt banking
situation in Europe. Following Mondayâ€™s
downgrade by the Fitch credit rating service of BNP Paribas, traders remained
nervous throughout the day. Investors are now questioning whether other
European banks will face similar crises.
Technically the September E-mini S&P 500 confirmed
Mondayâ€™s closing price reversal top. This chart pattern suggests a 2 to 3 day
break to at least 1083.25 to 1072.50. Traders should watch for a minimum
correction in the September E-mini NASDAQ to 1854.75 to 1834.50. The September
E-mini Dow chart suggests a break to 10073 to 9964 is likely over the
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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
13:30 US- Current Account Wed 20 Dec
15:00 US- Existing Homes Sales
15:30 US- EIA Crude Thu 21 Dec
03:00 JP- BOJ Decision
13:30 CA- CPI & Retail Sales
13:30 US Weely Jobless
13:30 US- GDP Fri 22 Dec
09:30 US- GB- GDP
13:30 US- core PCE Deflator & Presonal Income
15:00 US- New Homes Sales
15:00 US- final University of Michigan
17:00 US- early Closes Mon 25 Dec
00:00 Christmas Holidays
Potential Trading Opportunities
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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