Tuesday November 9, 2010 - 04:20:37 GMT
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Stronger Dollar Pressures Risky Assets
The strong rally in the Dollar triggered by sovereign debt
concerns in Ireland
pressured risky currencies and equity markets. Traders decided to exit risky
asset positions while carefully watching how the current situation unfolds.
Stock indices churned all day which could be an indication
that a correction may be imminent. Last weekâ€™s Fed decision to pump another
$600 billion into the economy seems to be fully priced into the market, making
it more sensitive to news and economic reports.
Despite the stronger Dollar, December Gold and December
Silver rallied sharply higher, driven by the sovereign debt concerns. A
sideways-to-lower equity market trade could mean more money will pour into
precious metals since both asset classes are currently competing for the same
The British Pound weakened against the U.S. Dollar on
Monday. Oversold conditions may have been the biggest contributing factor to
the weakness. Spillover selling pressure triggered by the sovereign debt issues
may have encouraged some traders to pare back profitable positions. Overall the
Dollar was strong because of the shedding of risky assets.
On Tuesday, traders will be watching a key U.K. industrial report. Industrial output
is expected to increase for the third consecutive month in September.
Pre-report guesses are for this report to show an increase of 0.4%. Anything
greater than this amount, is likely to fuel a bullish reaction in the December
Last week the Bank of England decided to take a wait-and-see
approach as it decides on whether to inject additional stimulus into the
market. With inflation holding above the governmentâ€™s 3% limit for price
growth, a better than expected industrial number could mean the BoE will
refrain from applying additional quantitative easing for at least the remainder
of the year.
Technically, the main trend is up on the daily chart. On
Monday, the Sterling
broke uptrending Gann angle support at 1.6210. This is a sign of weakness and
could be indicating a further decline into a retracement area at 1.5974 to
1.5897. On Tuesday, an uptrending Gann angle comes in at 1.5930. Based on the
speed of this angle, it will cross 1.5974 on November 11 or 12.
If the industrial report comes out bullish, look for the
market to make an attempt to regain the angle at 1.6210. If it can sustain the
rally over this angle, then look for an upward bias to build.
The inability to regain the angle means a test of 1.5974 is
likely by the end of the week.
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