Investors sold off U.S. equities shortly after the Fed
released its August Federal Open Market Committee meeting minutes but short
selling dried up a little under a key short-term retracement zone. Thin trading
conditions triggered a huge short-covering rally into the closing bell.
After a strong surge to the upside on the opening, the
September E-mini S&P 500 began to weaken as bullish traders remained on the
sidelines ahead of Fridayâ€™s U.S.
employment report and Mondayâ€™s Labor Day holiday.
In its Minutes, the Federal Reserve said the outlook for the
economy would have to deteriorate â€śappreciablyâ€ť to spur fresh stimulus from the
central bank. This statement didnâ€™t sit well with investors who sold off the
market into a retracement zone at 1046.00 to 1044.00. Downside momentum
actually took out this zone but the daily chart uptrending Gann angle at
1042.75 stopped the break.
With all the sellers out of the way, bottom pickers gained
control, triggering a strong short-covering rally into the close.
Thin conditions are likely to lead to volatility on
Wednesday especially after the ADP employment number, but the market may settle
into a range for the duration of the session.
The way of least resistance is down and this market looks
vulnerable to the downside. It seems like just a matter of time before the
bottom falls out. Low volume and thin
trading conditions could be helping to prevent a sharp sell-off at this time.
Tuesdayâ€™s late short-covering rally may also make bears think twice about
shorting the Spoos in the hole. This means that another short-covering rally is
possible before the next shorting opportunity arises.
Euro has Roller-Coaster Day
Thin trading conditions and economic reports led to a
â€śroller-coasterâ€ť type trading session in the Euro on Tuesday. The European
single currency rallied on a better than expected German jobs report, topped on
strong U.S. Consumer Confidence data then, after trading sideways throughout
the mid-session, drifted lower into the close following the release of the Fed
The Euro gained strength overnight after it was reported
jobless numbers fell less than economist estimates. The market reacted as if
the number was bullish instead of just slightly lower than the pre-report
guess. Technically the Euro found support last night slightly in front of last
weekâ€™s bottom at 1.2587.It rallied when
stocks opened higher and sentiment shifted toward risk.
At 9 am CDT the Euro topped following a better than expected
Consumer Confidence Report. The actual number of 53.5 blew out the consensus
figure of 50.0. The surprise nature of this number drove investors back into
the Dollar. At this point the Euro broke from 1.2742 to 1.2680 before settling
into a trading range.
After a quick rally to 1.2701, the September Euro began to
break following the release of the Fedâ€™s Minutes from its last FOMC meeting.
This market broke hard into 1.2661 as the report indicated the Fed is ready to
take appropriate action should the U.S. economy deteriorate
â€śappreciablyâ€ť. The willingness of the Fed to consider taking additional steps
to provide more support if the economy weakens further drove traders into the
safety of the lower-yielding currencies, thus weakening the Euro.
Technically the Euro is in a downtrend, but the recent
sideways action has this market poised to move sharply in either direction. A
break to the downside is likely to run stops under the last swing bottom at
1.2587 all the way to the Fibonacci level at 1.2433.
A breakout over 1.2779 will change the main trend to up and
could ignite the start of a rally to 1.2960.
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