Thursday October 21, 2010 - 14:06:46 GMT
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Equities and Commodities Trading in Narrow Ranges
equities and commodity markets are trading in narrow ranges this morning as
traders wait for further direction from the Forex markets. Traders seem to be
unclear about the direction of these two asset classes following a rate hike by
earlier in the week and uncertainty regarding the size of the Fedâ€™s anticipated
Overnight the December E-mini S&P 500 made a new high
for the week, but had no follow-through. Although this morningâ€™s
better-than-expected Weekly Initial Claims data triggered a short-lived surge
to the upside, the lack of fresh buyers on the attempted breakout scared the
longs out and encouraged new selling.
Low volume and narrow ranges make this market very difficult to predict
at this time.
Technically, it appears that 1175.00 will be the number to
watch today. This is last weekâ€™s close. Watch for a test of this level today as
the bulls will try to defend it and the bears will try to push the market
through it, setting up the possibility of a closing price reversal top on both
the daily and weekly charts.
With both buyers and sellers competing at the same level,
1175.00 may actually act as a pivot price today.
The U.S. Dollar is trading lower this morning, but recovering
slightly after new weekly claims for unemployment benefits fell more than
expected last week. Although this number showed some improvement in the labor
market, it is not enough to reduce the need for more stimuli from the Fed. The
rebound in the Greenback is most likely position evening and profit-taking
following the release of the better-than-expected jobs data.
The December British Pound is under pressure overnight
following a strong rise on Wednesday. The reversal of the previous dayâ€™s rally
is a sign that the action was most likely short-covering rather than new
buying. Traders were reacting to the Bank of England minutes which showed a
three-way split as to whether the central bank should provide additional
stimulus to the economy.
With the government starting another round of spending cuts,
many traders feel the BoE will be forced to provide fresh quantitative easing
to prevent a double-dip recession. Speculators pressured the Sterling overnight in anticipation of a
further easing of monetary policy. Additionally, an overnight report showed U.K.
retail sales unexpectedly dropped in September for a second month, encouraging
traders to further explore the short side.
While this report pushes the central bank closer to printing
more money to help the economy, traders firmly believe that the next U.K.
inflation report will be the final determinant as to when the BoE will begin
another round of quantitative easing and how much aid will be made available.
Technically, Wednesdayâ€™s rally stopped at 50% of the sharp
break at 1.5878. This price level was based on the short-term range of 1.6106
to 1.5650. Since the main trend turned down on the daily chart earlier in the
week, yesterdayâ€™s rally may have set up a secondary lower top.
If this is the case, then the next move is likely to
continue down to 1.5701. An acceleration through this level could trigger an
even further break to an uptrending Gann angle at 1.5616 or the .618
retracement level at 1.5605.
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