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Bullish GDP Report Launches Equity Market Rally

James Hyerczyk from ForexHound.com at 10/29/09


A bullish U.S. Third Quarter GDP Report this morning has helped launch a strong rally in the December stock index futures. Traders have renewed their demand for higher risk assets after a four-day decline. Technically, the markets are only retracing the recent down move. A close on the high and a follow-through rally tomorrow will be a better indication that the correction is over. Although the report was bullish, it is stale data. Traders want may want to see if the economy continues to improve before committing new money to the market. Many investors feel that this report was already priced in and that after today’s rally and 50% retracement of the recent break, the correction will resume.

December Treasury futures are under pressure today. Today’s bullish GDP report has brought the Fed closer to tightening its monetary policy. This is making traders think that interest rates may rise sooner than expected. Furthermore, when equities and commodities move higher, investors start asking for higher yields. This is the reason for the weakness in the T-Bonds and T-Notes today.

The U.S. Dollar is under tremendous pressure today as traders have increased their demand for higher yielding currencies. This is erasing all of the Dollar’s gains from yesterday. The strongest currency is the December British Pound. The other currencies are showing strength today, but are only retracing 50% of the decline for the week. Like the equity markets, these markets have to take out the retracement zones and finish near the high of the day to indicate real strength. Otherwise it looks like we are in the midst of a short-covering rally.

December Gold is trading higher because of the weaker Dollar. The charts indicate that $1049.40 to $1054.70 is the potential upside target. Fresh selling may come in at this zone. December Silver has a similar pattern developing with 17.15 to 17.39 its potential upside target.

The better than expected U.S. Third Quarter GDP number is helping to boost December Crude Oil Higher equity prices, the lower Dollar and increased speculation are also providing support. Like the equities and currencies, this market may be only retracing this week’s break.

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