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Equity Traders Look for Higher Opening as Dubai Concerns Subside

James Hyerczyk from ForexHound.com at 11/30/09


U.S. equity markets are trading higher this morning as concerns over Dubai issues subside. Traders are now downplaying the debt issues in Dubai and calling it a local issue.  This is helping to weaken the Dollar and increase demand for higher yielding assets.


With Dubai issues aside, investors will be focusing on retail sales.  Traders are monitoring last week’s Black Friday sales to see if this will translate into higher stock prices.  Today’s focus will be on internet retail sales. 


The December E-mini S&P 500 is still in an uptrend.  Speculators gobbled up stocks on early weakness on Friday.  Based on the short-term range of 1112.75 to 1077.75, 1095.00 to 1099.00 becomes an important pivot area.  Regaining this retracement zone will be a strong indication of higher prices to follow.  A failure in this zone will indicate that a secondary lower top is forming.


Treasury futures are expected to trade lower as traders are selling positions in December Treasury Bonds and Treasury Notes that were initiated when equity markets weakened last week.  Look for this sell-off to continue throughout the day as demand for safe assets will fall if equities rise and the Dollar weakens.


The U.S. Dollar is declining overnight as speculators are downplaying the debt problems in Dubai. Over the week-end, the United Arab Emirates central bank said it “stands behind” the country’s lenders.  This helped to ease concerns that the state owned Dubai World will default on its debt.  Traders now believe that this is a local economic problem rather than one with global ramifications.  With these assurances in place, speculators are increasing their demand for higher yielding currencies.


Despite these assurances by the central bank, traders should continue to watch how the Dubai debt situation unfolds.  The debt problem has exposed the fragility of the world financial markets.  Although there may be a short-term pick-up in global demand for risk, upside momentum in foreign currencies may slow if investors decide to be a little more defensive in their speculative plays.  Traders may decide to adopt a “trade not to lose” mentality which could create volatile trading conditions as investors will be quick to take profits following any appreciation.


Over the week-end, Chinese Premier Wen Jiabao rejected calls for a stronger Yuan. European Central Bank members had traveled to China hoping to convince Chinese officials to allow its currency to rise. Their premise was that China is distorting trade and limiting its own monetary policy options by keeping the Yuan tied to the weakening U.S. Dollar.  Wen said that keeping the Yuan stable is best for China’s economy.  He also implied that a stable Yuan would be beneficial for the global recovery.  European officials feel that China’s currency policy is hurting exports because it drives the Euro higher and that this policy is actually detrimental to the Euro Zone’s economic recovery.


Dollar Index futures are trading lower overnight, but holding above last week’s low at 74.27.  The late session rally from the overnight low at 74.54 indicates that traders are tentative about pressing this market further.


A rise in consumer prices is helping to boost the December Euro overnight as well as a return of demand for higher yielding assets.  The main trend is up with a new main bottom at 1.4799.  A trade through this price turns the main trend down.  1.5144 is a new minor top.


The December British Pound is trading sideways overnight.  Pressure is coming from the thought that the U.K. economy will continue to weaken over the short-term.  A recent GDP report shows that despite additional stimulus, the economy is not as robust as previously forecast.  Technically, the main range is 1.5702 to 1.6876.  The 50% price at 1.6289 held last week after a sharp sell-off.  Additional support is coming from a pair of main bottoms at 1.6258 and 1.6245.


The December Japanese Yen hit a 15-year high last week at 1.1790.  The current short-term retracement is normal because of overbought conditions.  Continue to look for sideways to higher trading unless this market falls back below the old bottom at 1.1368.  Speculators are also a little confused as to whether the Japanese government will intervene.  It is well-known that they are concerned about the detrimental effect a rise in the Yen has on exports, but traders aren’t sure if the BoJ will intervene to pressure the Yen.  Japanese Finance Minister Fujii said over the week-end that the government won’t act to curb the Yen’s gains, but later denied the comment.  No one is sure what the government has in mind.  This could produce volatile trading conditions.


The recent Commodity Futures Trading Commission Commitment of Traders Report shows that speculators are looking for the Swiss Franc to rise.  This new strategy could be based on the thought that the Swiss economy will outperform the other European nations.  The December Swiss Franc has been rising and is not likely to turn back down unless .9782 is violated.  Last week’s intervention by the Swiss National Bank helped trigger a top at 1.0090 and a closing price reversal down. 


The December Canadian Dollar is in a downtrend, but short-term range bound.  Support is at .9212.  Resistance has formed at two main tops at .9599 and .9570.  Canadian Dollar traders are waiting for signs from the equity and crude oil markets that demand for risk is returning.  If these two markets continue to weaken, then look for the Canadian Dollar to break to the downside.


February Gold is trading lower despite the weakness in the Dollar.  Last week’s sharp break may have damaged the confidence in traders who thought gold was a safe investment during times of economic turmoil.  The main trend is up, but weakness can develop on a trade under the retracement zone at 1149.70 to 1138.60. 


The main trend turned down in March Silver.  The lower-top, lower-bottom formation indicates developing weakness.  The chart indicates that 17.57 to 17.24 is key support.  Last week’s sell-off stopped at 17.72.  A break under this support zone will trigger a further decline. 

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