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Bad Housing Starts Report Limits Upside Movement in U.S. Equity Markets

James Hyerczyk from ForexHound.com at 11/19/09


Despite the weakness in the Dollar today, U.S. Equity markets could not get on track for a rally because of a bad housing starts report. This morning’s decline in U.S. Housing Starts capped gains throughout the day although the markets were able to eke out a slightly better close. Traders are beginning to question stock valuations given the current weak state of the economy.


Treasury futures traded lower throughout the session despite the weak housing starts report. Today the U.S. also reported that the Core CPI rose.  This report was most likely the cause of the break as it served as a reminder that inflation was still out there. Technically, today's closing price reversal indicates overbought conditions and could trigger the start of a 2 to 3 day break.


This weaker than expected housing starts report kept downside pressure on the equity markets throughout the trading session.  The choppy trade in the U.S. Equity markets created see-saw movement in the currencies throughout the day. Traders didn't know whether to buy the dips in the Dollar in anticipation of a drop in equity markets or to sell more Dollars.


The December Euro posted a sizable gain.  Tuesday's supportive comments from European Central Bank President Trichet were not enough to stop the Dollar’s slide today. Matters weren’t helped after Luxembourg premier Jean-Claude Juncker said that the Euro’s rally hasn’t hurt the Euro Zone recovery.  This comment gave traders the green light to drive the currency higher. If upside momentum continues at the current pace, we could see a test of 1.5063 tomorrow.


The December British Pound traded lower on Wednesday. This was triggered by a negative reaction to the Bank of England minutes and overbought technical conditions. Traders reacted to the  news from the BoE minutes that the vote was split regarding the recent expansion of the central bank’s quantitative easing program.  The initial reaction to the split vote was positive as it suggested the bank would not expand further. The market, however, broke after a follow-through rally failed. Traders looked for the safety throughout the New York session while they sorted out the data from the minutes report.


December Gold made a new high for the year but settled slightly better.  Today's early rally was triggered by the weaker Dollar and today's inflation data.  Gains were limited because the Dollar ended up strengthening throughout the day. Although no reversal top was formed, the close near the low suggests the selling may be greater than the buying at current levels.


January Crude Oil finished better on speculation and the lower Dollar.  Today’s oil inventory report suggested that consumer demand is still falling.  If the Fed’s assessment of the economy is right, then demand should continue to drop because of the fragile economy and high unemployment. All this market needs is a stronger Dollar to send it lower.

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