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Poor U.S. Economic Data Erodes Equity Market Support

James Hyerczyk from ForexHound.com at 10/28/09


A weak U.S. housing number is helping to drive down stock prices at the mid-session as economists are now warning of a possible double-dip recession in the economy. Losses in the equity markets are leading to gains in the U.S. Dollar. Today’s durable goods report came out in line with expectations. Today’s action puts further importance on tomorrow’s U.S. Gross Domestic Product report.

The December E-mini S&P 500 took out the 50% retracement support at 1056.75 and is now headed to the next retracement level at 1047.00. There may be a technical bounce at this level especially since this market is approaching short-term oversold status. The weakness in the equity markets is not just a domestic event; global markets are all going down as investors are adjusting to more realistic valuations now that the Dollar is strengthening.

Investors are leaving equities and moving into the fixed income markets. This is helping to drive the December Treasury Bonds and Treasury Notes higher as yields in both of these instruments are plunging. The drop in equity prices is helping to drive up demand for U.S. Treasuries which should help today’s auction to go off without a hitch.

The U.S. Dollar is trading higher at the mid-session against higher yielding currencies including the Euro and Canadian Dollar. Both currencies are trading weaker because of the drop in demand for higher risk assets like equities and crude oil. The December Japanese Yen is up as traders are now aggressively seeking the safety in lower yielding currencies.

December Gold is weakening as the Dollar strengthens. The first downside objective at $1028.80 was reached today. Watch for a possible technical bounce at this level. If this area fails to hold as support, then look for a further decline to $1018.50.

December Crude Oil is under pressure as investors dump higher risk assets. The rise in the Dollar is also putting pressure on crude oil prices. Gasoline inventories unexpectedly rose last week. This put immediate pressure on crude oil prices. The charts indicate this market has the potential to plunge sharply lower with $73.00 to $71.00 the next likely target.

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