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Equities Tread Water after Firm Opening

James Hyerczyk from ForexHound.com at 12/15/09


U.S. Equity markets treaded water most of the session after a firm opening.  Once again a gap-higher opening during the day session in the stock indices failed to attract strong buying interest.  This was no surprise, however, as traders have backed away many times from chasing this market during its nine-month rally. The December E-mini S&P 500 stopped at 1118.00, just short of the high for the month at 1119.00 and below a major 50% price at 1122.00. A break under 1108.00 will indicate developing weakness. 


Today’s failure to rally to a new high for the year on good news indicates that investors are uncertain about the Fed’s statement later this week.


Treasury futures traded flat most of the day.  The Abu Dhabi bailout of Dubai helped to alleviate the pressure to increase yields as concerns over credit rating downgrades subsided. 


The U.S. Dollar finished lower today against a basket of trade weighted currencies. The Greenback was under pressure all day and never quite recovered following an overnight announcement that Dubai received $10 billion in financing from Abu Dhabi to pay part of the debt held by the state-owned Dubai World.


Global investor concerns were eased by this event because it helped to alleviate the need to use the Dollar as a safe haven investment. Last week, the Dollar rose partly after a credit ratings downgrade of Dubai owned entities along with downgrades of Greece, Portugal and Spain. 


Trading was lackluster and slow ahead of this week’s Federal Reserve Open Market Committee meeting on December 10th.  Investors seemed reluctant to take a big position ahead of this last meeting for the year. Since the FOMC’s last meeting in November, the U.S. unemployment rate has dropped to 10% and retail sales have risen above expectations. Job losses and consumer spending are two key input factors the Fed uses to determine its interest rate policy.


Traders are hoping the Fed looks at the improvement in these two factors and issues a more hawkish statement.  A dovish statement will be a surprise which is not likely to bode well for the Dollar.


The March Euro finished slightly higher after bouncing off a 50% price at 1.4594 Sunday night.  The initial thrust in this market overnight was provided by the surprise news out of Abu Dhabi regarding its partial bailout of Dubai World.  Gains were muted, however, by the news that Euro Zone industrial production fell for the 18th month while employment extended its decline and uncertainty over the Fed’s next decision.


The March British Pound rebounded after trading lower overnight. The news out of Dubai did not helping the Cable.  The lack of follow-through to the downside after New York open most likely led to short-covering.  British Pound traders have enough on their tables than to worry about sovereign debt issues in the Middle East.  The U.K. has budget and debt issues of its own. 


The March Japanese Yen was underpinned all day from traders reversing their short positions initiated last week. This currency pair closed on a 50% price at 1.1318. The chart indicates the possibility of a further rally to the 50% resistance at 1.1407.


The March Swiss Franc finished slightly higher in light trading.  Support was provided by last week’s low at .9651. Strength was indicated when this currency regained the old main bottom at .9690.  This is usually a sign that conditions are oversold and that the last drive lower was most likely stop driven rather than fresh selling. 


Firm crude oil and stronger equity markets helped to support the March Canadian Dollar late in the trading session.  This market continues to drift inside of a tight and narrow range without much direction.  Unless something major comes out that will ignite some movement, look for trading to continue on both sides of .9504 and .9446.


The weaker Dollar helped boost February Gold on Monday.  Oversold conditions as well as the failure to break last week’s low at $1110.20 also helped support the market.  Additional support comes in at a 50% price at $1107.40.  The daily chart indicates there is room to the upside with $1150.00 a potential upside target.


Firmer equity markets and a weaker Dollar helped March Crude Oil rebound off an early low at 72.45.  Unfortunately, this market just missed posting a daily closing price reversal bottom.  In addition, the market once again failed to regain a .618 retracement level at 73.63.  A close above 73.63 could trigger a further rally to 75.53.  News that OPEC would not change its output kept downside pressure on this market.  Unless demand pick-ups, look for more downside pressure.

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