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Initial Claims Report to Set Tone in Equity Markets

James Hyerczyk from ForexHound.com at 12/31/09


Today’s weekly U.S. Initial Claims Report is expected to set the tone in the equity markets today.  The stock indices are expected to open higher, but gains could be thwarted by an initial claims report showing an increase in job loss claims greater than the estimated 455,000.


Treasury futures are trading lower.  The two-day short-covering rally appears to be coming to an end following overnight profit-taking.  There is a little life left in the March Treasury Bonds, however, until support at 115’08 is broken.


The weaker Dollar is helping to boost February Gold.  The key retracement area which needs to be taken out is $1107.40. Once support is re-established at this price, then look for this market to attempt to change trend on a rally through the last main top at $1114.50.  $1151.00 is the potential short-term upside objective.


Despite the weaker Dollar, March Crude Oil is trading lower.  The next upside objective is 81.52.  The chart pattern suggests overbought conditions may be limiting gains. The charts also show that this market is vulnerable to a correction back to 77.10.


The U.S. Dollar is down sharply overnight against most major currencies on end-of-the-year position squaring.  Although the Dollar is about to close lower for the year versus most currencies, this month it has shown signs of bottoming because of the improving economy and the possibility of an interest rate hike by the Fed earlier than previously estimated.


The Dollar could trade under pressure until the important U.S. Employment Report on January 8th.  This report is likely to set the tone for the Dollar for several months.  Last month’s report showed a surprising drop in the unemployment rate from 10.2% to 10.0%.  Traders will be watching the next report to see if this was an aberration or the start of a trend.  The direction of the Dollar for several months will be decided by this report. A better than expected number should put the pressure on the Fed to begin raising interest rates before the start of the third quarter.  A bearish report will mean the Fed will wait until after June.


Technically, the daily chart is indicating the Dollar Index is ripe for a near-term correction.  A trade through 77.33 will turn the main trend to down and set up a correction to 76.31 to 75.80. Today’s initial claims report will move the market today. Guesses are for the report to show 455,000 jobs were lost. A better number should help to limit losses.


The daily chart pattern in the March Euro suggests the minor trend will turn up on a trade through 1.4457. The first upside objective over the short-term is 1.4680 to 1.4790.


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