Absence of Major Buyers Keeps Lid on Equity Markets
The absence of major buyers ahead of this weekâ€™s U.S.
Non-Farm Payrolls Report was evident today as stock markets weakened following
friendly jobs and service data.In
addition, todayâ€™s Fed minutes weakened the Dollar because of greater demand for
higher yielding currencies, but this weakness in the Greenback failed to turn
into greater demand for equities. Usually the first week of January sees an
increase in cash from institutions and mutual funds, but this year, this buying
power has remained on the sidelines while the major players await this weekâ€™s
After trading lower overnight, March Treasury Bonds tried to
mount a recovery but failed. Todayâ€™s early economic reports indicated the U.S.
economy was gaining strength, but this afternoonâ€™s minutes showed that the Fed
was still concerned about the pace of the recovery. Treasury traders seem to be
content with keeping the T-Bonds and T-Notes in a range until more clarity is
established. This may mean more sideways action tomorrow.
Yesterday the main trend turned up on the daily chart.The chart pattern suggests that a rally back
to 117â€™15 is possible if upside momentum can continue.At this time, the market is correcting the
short-term range of 114â€™16 to 116â€™05.
February Gold surged to the upside following the break in
the Dollar. The chart pattern suggests that this market is well on its way to
completing a major 50% retracement of the $1227.50 to $1075.20 range at
March Crude Oil rallied sharply higher after earlier
weakness.Todayâ€™s action took out the
October high at 83.60.More signs that
the economy is recovering is driving speculators to anticipate a strong
increase in demand.
The Dollar finished the day near its low as a late session
report from the Federal Reserve helped diminish expectations for an interest
rate hike.Todayâ€™s Federal Reserve
minutes showed that officials were unconvinced about the strength of the recovery
and that inflation should remain under control for now.
Although the Fed had forecast growth for 2010 and 2011, it
stated that a faster paced recovery should not be strong enough to quickly
turnaround the unemployment rate.In
regards to last monthâ€™s positive change in the unemployment rate, the minutes
said that Fed officials believe that â€śmore than one good report would be needed
to provide convincing evidence of recovery in the labor marketsâ€ť.
In summary, the current action in the Dollar seems to
indicate that the recent signs of an improving economy will not sway Fed
officials from their belief that the recovery would be gradual relative to past
recoveries and that inflation would remain subdued.This leads me to conclude that the Fed will
not be raising rates soon, and that it is not concerned about inflation.
In other news, traders shifted their interest once again to
higher yielding currencies and assets as the ADP jobs report showed that the
jobs lost in the private sector fell at a slower pace than expected.Another report showed that the service sector
of the economy improved. Both reports contributed to a sell-off in the Dollar
which is a strong indication that risk sentiment is shifting again.
Wednesdayâ€™s weakness took place after the U.S. Dollar
rallied overnight following yesterdayâ€™s closing price reversal bottom.The first objective was met at 77.77 early in
the evening, but upside momentum took the market to the upper end of the
retracement range at 77.93 where it met strong selling pressure.Todayâ€™s weak close indicates a possible
resumption of the downtrend with 76.31 to 75.80 the next downside objectives.
The March Japanese Yen lost ground on Wednesday as traders
placed bets on a friendly Non-Farm Payroll report this Friday.This market should be watched carefully the
next few days to see if there is a noticeable shift in risk sentiment among
traders which could pressure the Dollar.
Earlier today, this currency pair completed a retracement of
the 1.0731 to 1.0964 range at 1.0848. Fundamentally, traders reacted slightly
to an improving global economy while expectations remain for the Japanese
economy to remain under pressure.News
of Finance Minister Fujiiâ€™s resignation but a little pressure on the market as
this event seemed to have been already priced in.
The March Euro weakened into a retracement area at 1.4350 to
1.4319 before holding and beginning a strong rally. The close over this zone is
a positive development which should put the Euro back on pace to challenge a
major retracement zone at 1.4680 to 1.4790. Traders will be watching for news
regarding a possible bailout of Greece.The Euro could strengthen if it becomes clear
the European Union will not bail Greece out of its budget
The main trend remains down in the March British Pound but it
looks like this market is trying to establish support inside of a retracement
zone at 1.6036 to 1.5988.This is a
critical area which must hold and attract buyers.If buyers step in and begin to support the
Pound, then look for the start of a rally back to 1.6355 over the short-run.
On Thursday the Bank of England will hold its first meeting
of the year. Expectations are for the BoE to hold interest rates steady while
continuing to provide stimulus to the economy in hopes of the start of a
The March Swiss Franc showed strength on Wednesday following
a test of a 50% price at .9840, but the break seemed tentative as traders may
be anticipating intervention action from the Swiss National Bank.
Look for the strength to continue as long as this market
remains over .9640, but be careful adding to longs as the market nears a key
retracement area at .9806 to .9873.
The uptrend in the March Canadian Dollar resumed late in the
trading session after trading in a tight range overnight.The direction of gold and crude oil will
continue to exert the biggest influence on this currency pair.Wednesdayâ€™s rally in gold is helping to
underpin the Canadian Dollar. Todayâ€™s downside action suggests this market is
well on its way to a test of an old main top at .9741. Upside momentum may slow
as the market approaches this level on concerns the Bank of Canada may try to weaken
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