Wednesday September 15, 2010 - 01:54:26 GMT
Share This Story
Forex Hound - www.forexhound.com
Bonds Rally Despite Friendly U.S. Economic Reports
Despite the friendly retail sales and business inventory
reports, December Treasury Bonds continued the rally which began on Monday
after the market finished its correction of the 124â€™22 to 135â€™19 range when it
found support at the .618 level at 129â€™11.
The current chart pattern suggests that a retracement to
131â€™24 is likely. This price forms a resistance cluster with a downtrending
Gann angle at 131â€™27. This cluster is very important on Wednesday. Selling
pressure could come in; triggering a short-term break or the market can
accelerate to the upside over this zone.
What the current chart pattern is suggesting is that the
market just finished a correction. This assumption can be made because we know
that the Fed has been buying T-Bonds and are likely to continue to do so. How
do we know this? Because the Fed told us at its August meeting that it would be
Like it or not, the Fed is now an investor and has the
capability to move a market. This means that like an investor, the Fed may not
want to chase the market higher, but instead wait for dips and pullbacks into
value areas. After the Fedâ€™s announcement in August, T-Bonds went on a tear.
The Fed was not looking to chase the market higher, so it most likely opted to
wait for a pull-back. Paying too much for an investment would have hurt the
The conclusion that can be reached is that T-Bonds were
boosted by the increased amount of government debt that the Federal Reserve
will buy in the coming weeks. According to Reuters, a report from the central
bank on Monday said the Fed plans to buy about $27 billion of Treasuries
starting later this week to early October. This is $9 billion more than its
initial round of government debt purchase that began in August.
If the Fed is aggressive tomorrow then the market is likely
to break through the resistance zone at 131â€™24 â€“ 131â€™27. If the Fed deems this
price too expensive, then look for selling pressure to trigger the start of a short-term
Stocks surged to the upside on Tuesday after a small
profit-taking break overnight, driven higher by a better outlook for the
economy. Appetite for higher risk assets increased, following better than
retail sales and business inventory reports.
For a few days, Iâ€™ve been talking about the possibility of a
rally and that the key was whether U.S. investors would chase this
market higher or wait for a dip. Todayâ€™s action was a strong sign that U.S. market
players continue to prefer buying breaks over buying strength.
Todayâ€™s rally in the December E-mini S&P 500 stopped
short of the breaking out over a pair of tops at 1122.00 and 1124.50. The
December E-mini Dow was in a position to challenge the August 9 main top at
10614. The December E-mini NASDAQ remained the strongest after breaking the
swing top at 1918.00. The new target is the June 21 top at 1941.00.
The upside momentum the past few days has been impressive,
but there is still much debate as to whether these markets are still in a
The U.S. Dollar declined against all the major currencies on
Tuesday after economic reports showed U.S. retail sales and business
inventories rose more than analyst expectations.
The friendly data helped ease investor concerns about the
outlook for the global economy, making them more willing to buy riskier assets.
Increased appetite for risk drove up demand for stocks and commodities while
encouraging the liquidation of assets considered safer, such as the U.S.
Traders bought the Euro after the friendly report was
released. The December Euro rallied sharply higher for the second day in a row
following a slight setback overnight.
Now that the daily chart has reaffirmed its uptrend, momentum is likely
to carry this pair into a Fibonacci/Gann angle price cluster at 1.3049.
Early in the session the Euro was trading lower; giving back
some of yesterdayâ€™s gains after it was reported that the ZEW indicator of
German economic sentiment fell sharply in September to -4.3 from 14 in August.
Pre-report economist guesses were for a drop in the index to 9.0.
Despite the overnight weakness, the main uptrend never
appeared to be threatened. Traders were basically using the report to pare
positions ahead of todayâ€™s U.S.
retail sales number after yesterdayâ€™s sharp move to the upside. Although the
report showed economic sentiment had dropped more than expected, the odds
remain low that Europe will experience a
double-dip recession. The strong rise in the Euro at the Dollarâ€™s expense
suggests that investors believe that the European economy will recover faster
than the U.S.
Investors continued to underpin the December Japanese Yen
even after current Prime Minister
Kan was retained by voters after
todayâ€™s election. The decision to continue to support the Japanese Yen is a
sign that investors are not confident the government or the Bank of Japanâ€™s
intent to intervene is not being taken seriously. Furthermore, investors also feel that an
intervention may not be successful now because it requires the cooperation of
other central banks which may not be very helpful at this time due to their
dealing with economic issues of their own.
Technically, at a minimum, this market is going to have to
produce a daily closing price reversal top to get the ball rolling to the
downside. The best sign of a top, however, will be the formation of a weekly
reversal, but we wonâ€™t know it has formed until later in the week.
The December British Pound finally broke through the
downtrending Gann angle which had held this market down since the 1.5997 top
formed on August 6. This angle came in on Tuesday at 1.5457. The sharp
acceleration to the upside took out stops and attracted fresh buying. The
current chart formation and upside momentum indicates that this market is
likely to rally over the short-run into a retracement zone at 1.5647 to 1.5729.
Continue to look for the Dollar to weaken as long as there
is demand for higher risk assets. In addition, traders must monitor U.S.
economic reports. At this time it seems, investors are selling the Dollar on
economic news but at some point in the future this way of thinking is going to
shift. Based on the rally in the T-Bond market, it looks as if investors still
expect lower yields, which translates into a weaker outlook for the economy.
The Dollar is likely to continue to weaken against the Euro as long as
investors believe that the Euro Zone economy is on a faster path to recovery
than the U.S.
Watch the stock market and the Euro as to whether this
demand is waning. The problem with the markets lately has been the lack of
follow-through and the tendency to take small, quick profits. Coupled with high
volatility, this could lead to wild swings.
Forex Trading News
Daily Forex Market News
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
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."