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Monday August 9, 2010 - 14:22:05 GMT
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Stocks and Gold Likely to Battle for Control of Investment Dollars

Stocks are trading higher overnight and the Dollar is trading mixed. Without any major U.S. economic reports this morning and the Fed meeting on Tuesday, trading could be light and directionless today. On the other hand, sometimes thin trading conditions trigger wild swings so investors should be on their toes so as to not get caught on the wrong side of the market.

With Friday’s Non-Farm Payrolls report behind them, traders will have to wait until Tuesday afternoon before getting any fresh market driving economic news. Although Friday’s employment data was disappointing, investors still are not sure if it was weak enough to warrant an immediate change in the Fed’s monetary policy. Pessimistic traders believe the Fed has enough evidence of an economic slowdown to renew its quantitative easing program. Optimistic traders think the Fed will alter the language a little in its policy statement, but hold off for another month before reintroducing stimulus.

Two markets to key on before the Fed decision will be December Gold and the September E-mini S&P. Gold as surged recently following a long sell-off on speculation that equities may break. Both markets compete for the same investment Dollar. Stocks have maintained an upward bias but have been rangebound because of indecision about the status of the economy.

This morning it looks as if equities are once again looking bullish while gold is trading flat. With gold nearing a retracement level and equities poised to break out to the upside, watch for a rally in stocks to trigger a profit-taking break in gold. According to the charts, only a break through last week’s lows in the equity markets can help gold maintain its upward bias. One of these markets has to give in to investor demands. In summary, higher stocks should lead to a weaker gold market.

December Gold surged to the upside on Friday, finishing the week in a strong position as traders bought the metal as a hedge against a potential drop in the equity markets and because of the weakness in the Dollar.

The close put the market in a position to test a major 50% price level at $1215.00. This price represents a retracement of the $1270.60 to $1159.30, June to July sell-off. After briefly piercing a downtrending Gann angle at $1212.60 today, the market settled back indicating there may be sellers up here. This is also a sign that more sellers may show up once the market completes the 50% retracement. Long traders should watch for a technical bounce at this level. The chart pattern suggests there may be a pull-back to $1186.30 sometime next week.

The strong surge in the September T-Notes and T-Bonds is an indication that investors are betting on new language in the Fed’s policy statement following this week’s August 10 meeting.

Investors expect the Fed to change the language it has been using to describe the length of the current economic slow down. In addition, investors are looking for the Fed to announce the renewal of its asset buyback program.

I’ve said this a countless number of times, but I’ll say it again, the bonds are the best indicator for the economy. As long as the Treasuries continue to maintain their higher-top, higher-bottom formation, look for the economy to remain weak.

Stocks were under pressure since the release of the jobs data early Friday morning. The markets sold off as the news was what not what investors expected, however, the ability to hold the markets in a range most of the day indicates that it was only disappointing and not earth-shattering.

Despite trading lower on Friday, the markets managed to hold on to their gains for the week. The rally, however, does appear to be running out of steam. Only a follow-through to the downside will confirm this analysis. If Friday’s low holds, then stocks could begin a breakout to the upside.

The British Pound is hugging a key Fibonacci retracement level against the Dollar amid speculation the Fed will announce a renewal of stimulus measures to boost the economy at its FOMC meeting on Tuesday.

The Sterling is continuing its rally from Friday after forming a new main bottom at 1.5819. Trading has been light with the range tight as the market toys with a major retracement level at 1.5967. Early last week the Pound made a top at this level, leading to the break to 1.5819. The key to sustaining this rally will be a close above 1.5967. Intraday traders should watch to see if support can be established at this price level if it can be regained. The uptrend will remain intact as long as the new main bottom at 1.5819 holds as support.

Concerns about the U.S. economy weakening are helping to make the British Pound an attractive investment at this time. While the U.S. has been struggling to maintain growth, the U.K. economy has remained relatively firm.

Investors have been optimistic about the U.K. currency since the new coalition government took control in May. Although they immediately proposed spending cuts and tax hikes, investors have embraced their decisions as necessary for the economy. The fear at the time was that a growing spending deficit would lead to a downgrade of U.K. debt.

Although the U.K. economy remains on path toward sustaining its recovery, some investors still feel that some stimulus may be necessary to maintain growth. They cite the tax hikes and austerity measures as the main reasons why the economy may stall during the third and fourth quarters.

A Fed decision on Tuesday to reintroduce stimulus measures should be enough to propel the British Pound higher. Should the Fed back away from a reintroduction of stimulus measures then look for the Sterling to weaken as speculators reassess their positions. The Fed is either going to act now because they see the situation worsening or wait another month because its interpretation of the economic data does not warrant immediate action.

 

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Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

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Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



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Amazing Trader EVENT RISK Calendar:

Wed 18 Oct
12:30 US- Housing Starts & Permits
14:30 US- EIA Crude
Thu 19 Oct
01:30 AU- Employment
08:30 GB- Retail Sales
12:30 US- Weekly Jobless
Fri 20 Oct
12:30 CA- Retail Sales & CPI
14:00 US- Existing Homes Sales

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  • POTENTIAL PRICE RISK: HIGH Tue-- 08:30 GMT GB- CPI top tier confirmation of Inflation.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT DE- ZEW Survey second most important German monthly Survey.

  • POTENTIAL PRICE RISK: Medium Tue-- 09:00 GMT EZ- final HICP revision to flash report. Revisions are usually minor.

  • POTENTIAL PRICE RISK: Medium Tue-- 13:15 GMT US- Industrial Production. Top output indicator.



  • POTENTIAL PRICE RISK: Medium Wed-- 12:30 GMT US- Housing Starts and Permits revision to flash report. Useful housing leading indicator.

  • POTENTIAL PRICE RISK: Medium Wed-- 14:30 GMT US- EIA Crude. Top WTI inventory measure.



  • POTENTIAL PRICE RISK: Medium Thu-- 01:30 GMT AU- Employment. Top economic indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 02:00 GMT CN- GDP. Top economic indicator.


  • POTENTIAL PRICE RISK: HIGH Thu-- 08:30 GMT GB- Retail Sales. Top consumption indicator.


  • POTENTIAL PRICE RISK: Medium Thu-- 12:30 GMT US- Weekly Jobless. Employment Indicator.



John M. Bland, MBA
co-founding Partner, Global-View.com

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