Stocks Continue Rally Bolstered by Robust Apple Earnings
Strong gains in metal and energy stocks helped turn U.S. equity
markets higher, erasing early session losses. Stock futures clawed back to
positive after opening sharply lower this morning. Equity markets were already
trading down because last night IBM and TI reported lower than expected revenue
figures when Goldman Sachs said that its second-quarter profit tumbled 82%.
More pressure came shortly before the opening following a weaker than expected
U.S. Housing Starts report.
By mid-session, the September E-mini S&P 500 was trading
higher after testing a 50% level at 1051.00 and holding 1050.75. This move was
enough to attract bargain hunters who triggered the start of a short-covering
rally. The strong gain on Tuesday retraced most of the recent four day break.
After the markets closed, the markets rallied further, bolstered by a bullish
earnings report from Apple.
equity markets plunged in pre-market trading following a weaker than expected U.S.
Housing Starts report. It was reported that in June housing starts fell to a
549,000 pace, a 5% drop and an 8-month low. The Dollar and Treasury instruments
rose on the news as traders became risk adverse, shifting their interest to
lower yielding assets.
The inability of the September Treasury Bonds to reach a new
contract high following the bad housing report may also be a sign that stocks
have reached an oversold level and Treasuries, an overbought area. Treasury
Bonds and Treasury Notes struggled to hold on to their early session gains. The
sharp rise in the equity futures pressured the Treasury instruments into the
close, setting up a possible break tomorrow.
August Gold traded weaker because of falling stocks and a
rising Dollar early in the session. The slow down in housing starts was another
indication of a weakening economy. This is likely to pressure consumer
confidence and spending, leading to more weakness in consumer prices and
inflation. A turnaround in the equity markets helped turn gold higher, leading
to the possibility of a minor closing price reversal bottom.
The Australian Dollar rebounded on Tuesday following a
three-day setback boosted by stronger U.S. equity markets and increased
demand for currency-linked commodities. Speculation mounted that the central
bank would raise interest rates before the end of the year following news that
the Asian Development Bank increased its growth forecast for China. This encouraged investors to
buy the Aussie in anticipation of improved economic conditions because of
increased demand for Australian raw materials.
Technically, the September Australian Dollar maintained its
uptrend despite the short-term correction to .8632. The strong move on Tuesday
puts the Aussie in a position to take out the swing top at .8870 and the .618
retracement level at .8883. A penetration of these two levels is likely to
trigger an acceleration to the upside.
The strong rise in the Australian Dollar along with talk of
another interest rate hike by the Reserve Bank of Australia triggered a strong rally
in the New Zealand Dollar. With the Aussieâ€™s likely to hike rates before the
end of the year and the Bank of Canada setting its benchmark rate 25 basis
points higher this morning, Kiwi investors gained confidence that the Reserve
Bank of New Zealand
would be next in line to adjust interest rates higher.
Technically, the September New Zealand Dollar rebounded
after testing the 50% level of the .6794 to .7303 range. The main trend is up,
but the market may run into minor resistance at .7166 to .7198.
After trading in a tight range most of the morning, pressure
from rising equity prices and commodities finally ignited a rally in the
September Canadian Dollar. Early this morning, the Bank of Canada hiked its
benchmark interest rate by 25 basis points. This increase was in line with
expectations, but the dovish tone of the policymakerâ€™s statement helped hold
the Dollar/CAD inside a tight range most of the morning. Once U.S. equity markets rebounded from
a weaker opening, traders aggressively bought the Canadian Dollar.
Technically, the September Canadian Dollar is still locked
inside of two ranges. The broad range is 1.0064 to .9208 with a mid-point of
.9636. The narrower range is .9208 to .9857 with a mid-point of .9533. Currently
this pair is trading between the mid-points of each range.
A rumor of a possible intervention by the Bank of Japan
helped pressure the September Japanese Yen on Tuesday. A turnaround in the
stock market pressured demand for lower yielding currencies, thereby adding to
the bullishness of the Dollar/Yen. Although an intervention from the BoJ is
possible, traders are taking a precautionary approach to the long side due to
the fact that the strength in the Yen has been caused by a weakening U.S.
economy and not excessive speculation. The BoJ is worried that the
strengthening Yen will lead to decreased demand for Japanese exports. Investors
are likely to remain long until the swing bottom at 1.1225 is violated. A
breakout below this point will turn the main trend to down, setting up a
possible decline to 1.1074..
The British Pound rebounded against the Euro after Hungaryâ€™s
smaller-than-expected debt auction renewed sovereign debt concerns in the Euro
Early in the session the British Pound was under pressure
due to concerns about the economic recovery triggered by a weaker-than-expected
budget deficit and lower mortgage approvals.
Technically, the September British Pound survived a two-day
break while keeping the main up trend in tact. Tuesdayâ€™s strong upside momentum
indicates the market may have enough power to test the last swing top at
1.5471. A new main bottom at 1.5152 may also form, adding to the Poundâ€™s
growing series of higher bottoms.
The biggest concern facing the Pound at this time is whether
economy can strengthen enough to trigger a rate hike by the Bank of England.
Traders are extremely worried that the economy will weaken further because of
the newly approved austerity measures.This would make the U.K.â€™s
debt rating vulnerable to a downgrade by the ratings agencies.
The September Euro traded lower, pressured by sovereign debt
concerns in Europe following poor demand for Hungaryâ€™s debt. Profit-taking ahead
of Fridayâ€™s release of the European bank stress tests results added to the
weakness. Traders are nervous about what the report will reveal. Some feel the
test wasnâ€™t stringent enough; others feel that it will show several banks need
to raise more capital.
After testing a Fibonacci retracement level at 1.2998 and
trading all the way to 1.3028, the Euro posted a daily closing price reversal
top on Tuesday. This is the second such reversal in two days signaling
increasing selling pressure. A follow-through to the downside is needed to
confirm the reversal. Watch for weakness to develop if the 50% level at 1.2783
fails to provide support.
Over the near-term, stronger demand for higher risk assets
is likely to continue to underpin the commodity-linked currencies.
Profit-taking is expected to continue to pressure the Euro as traders await
Fridayâ€™s European bank stress test results.
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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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