Monday October 4, 2010 - 14:09:30 GMT
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Euro Weakness Could Mean Risk is Off Today; Stocks Flat to Lower
Weakness in the Euro could be translating into a risk-off
trading session today in the U.S.
equity markets. Although they are not moving together closely to the upside,
last nightâ€™s reversal down in the Euro appears to have triggered a pre-session
sell-off in the December E-mini S&P 500.
Recent rallies in the E-mini appear to have been labored
with sellers waiting to pounce on each strong rise. Since September 21 there
have been three closing price reversal tops, but losses have been limited by
the lack of a strong follow-through to the downside.
Technically the E-mini looks weak this morning, having
violated a major uptrending Gann angle on the daily chart at 1140.50. This
angle is likely to act as a pivot today and should control the direction of the
The daily chart is indicating that there is a floor of
support at 1128.00 to 1122.00. In other words, the old tops at 1122.00, 1124.50
and 1128.00 are now the new support. Look for weakness to develop if this area
is violated with conviction. Otherwise, one has to conclude that this market is
developing a bottom for the new higher range that is possibly forming.
Based on the daily swing chart, all we can conclude is this
market is in a corrective mode unless 1117.25 is violated. A move through this
price will turn the main trend to down.
The December Euro is retreating this morning, after an
initial surge, on renewed concerns about the impact of the Euro Zoneâ€™s
sovereign debt woes.
The Euro was up early in the Asian trading session, boosted
by week-end remarks by Chinese Premier Wen Jiabao.
Jiabao helped the Euro when he said â€śWe hope that by
intensifying cooperation with you, we can be of some help in your endeavor to
tide over difficulties at an early date,â€ť Wen said in a speech to the Greek
parliament, according to The Wall Street Journal. â€śChina
will not reduce its euro-bond holdings and China supports a stable euro.â€ť
This strong endorsement initially underpinned the Euro until
Nobel Prize-winning economist, Joseph Stigliz, warned of sovereign debt threats
to the stability of the Euro Region, eroding Jiabaoâ€™s bullish spin, and forcing
investors to once again face the reality of debt problems in Spain, Ireland and other peripheral
In addition to the Stigliz comments, the Euro was weakened
by a further rise in Spanish unemployment.
It was reported last night that Stiglitz said in his book
â€śFreefallâ€ť that governments around the world may have attempted to cut deficits
too quickly, thereby setting up the possibility of a double-dip recession.
He also warned that the Euro Zone may not survive if
competitive tensions continue within the region.
The break this morning in the Euro looks as if investors are
paring positions as a precaution against a further acceleration in sovereign
debt woes. There doesnâ€™t appear to be any structural damage to the up trend,
however, a closing price reversal is developing which could translate into a
sizeable correction if confirmed.
Normal profit-taking may also be taking place as the Euro
edges toward a major Fibonacci level at 1.3896. Besides a reversal top, a break
under a major 50% level at 1.3510 will also be a sign that selling pressure is
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