Tuesday September 21, 2010 - 03:42:54 GMT
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Easing of Irish Debt Concerns Help Boost U.S. Equities
The easing of concerns regarding Irish sovereign debt helped
the December E-mini S&P 500 overcome the selling pressure that triggered a
closing price reversal top on Friday, triggering a resumption of the breakout
to the upside.
The market was trading higher ahead of a town hall talk by
President Obama broadcast live on CNBC at about the mid-session. After a
sideways trade during the talk, the market rallied to a new high for the day.
Evidently Mr. Obama said something bullish or he didnâ€™t say something bearish.
Either way, upside momentum was strong enough to continue the rally. Traders
could have been anticipating a dovish tone by the Fed tomorrow which means low
interest rates are expected to continue, thereby keeping down the borrowing
Technically, Fridayâ€™s closing price reversal was never
confirmed, and Mondayâ€™s rally negated the pattern. The daily chart pattern
suggests this market has room to rally to 1160.00.
December Treasury Bonds traded higher but in a tight range
as traders awaited Tuesdayâ€™s Federal Open Market Committee meeting decision. Investors
are anticipating the Fed will keep interest rates low, but could have been
speculating today that the FOMC will implement additional quantitative easing.
On Friday, the T-Bonds formed a closing price reversal
bottom after testing the .618 retracement level at 129â€™11.
A trade through Fridayâ€™s high at 130â€™29 will confirm the
reversal bottom and should trigger a breakout rally to the upside with 132â€™12
the next potential upside target.
The December British Pound fell against the Dollar amid
reports that showed the U.K.'s
M4 money supply unexpectedly dropped in August and mortgage lending continued
to slow in July. Traders were also paring positions ahead of the release of the
Bank of England minutes on September 22.
Technically, look for the Sterling to continue to weaken into a
short-term retracement zone at 1.5512 to 1.5461. An uptrending Gann angle
inside this zone could provide additional support. Watch for the market to
settle into this zone or encourage profit-taking following the break.
The December Japanese Yen gained a little ground as traders
pared short positions ahead of the Tuesdayâ€™s FOMC meeting. Trading has been in
a tight range since last Wednesdayâ€™s intervention. Fear that the Fed may decide
on additional quantitative easing weakened the Dollar versus the Yen.
Technically, the Yen is having trouble breaking through an
old bottom at 1.1651. Once this price level is cleared, the charts indicate
there is room to the downside. The worst case scenario has this market
eventually breaking to a major 50% price level at 1.1317, but this is not
likely to occur unless Japanese officials intervene once again. On the upside, a short-covering rally to a
retracement zone at 1.1913 to 1.1863 is likely to attract fresh selling.
The U.S. Dollar traded slightly lower versus the December Euro
as traders factored in the possibility of more monetary policy easing by the
Federal Reserve at tomorrowâ€™s Federal Open Market Committee Meeting.
The FOMC is not expected to take action on interest rates,
but may announce another round of bond purchases, known as quantitative easing.
This action is supposed to act as stimulus to help revive the ailing U.S.
Since the summer, a series of economic reports have
indicated that the U.S.
economy is stalling. Although a double-dip recession is now a remote
possibility, based on recent Fed language, the central bank feels that the
economy has slowed down enough to warrant further quantitative easing.
On Monday the Euro held on to its slight gains despite more
rumors of sovereign debt problems in Ireland
One analyst described the situation as â€śuglyâ€ť particularly in the Irish and
Portuguese bond markets.
Technically, the December Euro had an inside day following
Fridayâ€™s closing price reversal top. Overnight, bullish traders defended last
Fridayâ€™s low at 1.3019, thereby preventing the confirmation of the reversal
pattern. A confirmation of this pattern could trigger the start of a break to
1.2901. A trade through 1.3159 will negate the pattern and should trigger an
acceleration to the upside. Throughout the day, the Fibonacci level at 1.3049
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