Rising Global Equity Markets Pressure Dollar Overnight
James Hyerczyk from ForexHound.com at 12/10/09
Stronger global equity markets are contributing to the weakness in the Dollar as traders are once again increasing demand for more risky assets after reassessing U.S. economic data and the odds of an interest rate increase by the Federal Reserve.
This morning, traders will get their first look at the U.S. employment situation following last week’s surprise drop in the unemployment rate. This report has a chance to set the tone for the day.
Stronger demand for equities is driving up the December E-mini S&P this morning. Traders seem to have shrugged aside debt concerns in Dubai, Greece and Spain while renewing their interest in higher yielding assets. Yesterday’s closing price reversal bottom at 1085.00 will be confirmed on a move through 1097.00. The chart pattern indicates that 1102.00 to 1106.00 are potential upside targets.
Renewed interest in higher yielding assets is helping to push March Treasury Bonds and Notes lower. Traders could ask for higher yields during today’s 30-year Bond auction. This would put additional pressure on these markets later in the trading session. March Bonds are at a critical juncture. Currently this market is on the bearside of both a .618 level at 118’31 and an uptrending Gann angle at 118’28. Look for pressure as long as this market remains under theses levels.
February Gold is trading better because of the weaker Dollar. The key downside target remains $1107.40, but overnight action indicates this market may not reach this level, especially if the Dollar continues to weaken. The first upside target today is $1147.50. This downtrendng Gann angle is controlling the short-term direction of this market.
March Crude Oil has completed a .618 correction of the 67.46 to 83.60 range. This could trigger a technical bounce to the upside. A weaker Dollar and firmer equity prices could help fuel a short-covering rally. Gains could be limited because of bearish supply and demand conditions.
The U.S. Dollar is trading mixed overnight. The Greenback is losing ground against most majors while posting a modest gain versus the Japanese Yen. Although the overnight activity suggests a renewal of interest in higher yielding assets, traders are continuing to keep an eye on the developing global debt situation.
The December Swiss Franc is trading sideways-to-higher overnight following the Swiss National Bank monetary policy decision. The SNB left its 3-month target rate unchanged while announcing plans to stop bond purchases. It also added that it will continue to “act decisively” to counter strong gains in the Swiss Franc. At this time, the SNB feels that an interest rate hike is inappropriate because the recovery remains fragile and inflation forecasts uncertain.
Technically, the December Swiss Franc posted a closing price reversal bottom. Overnight action failed to confirm the bottom and the lower-low negated the pattern. .9675 remains the next downside target. Mounting upside pressure could drive this currency pair to .9898 to .9943 over the short-run.
Stronger equity markets and a bearish economic report are helping to pressure the Japanese Yen. The drop in core machinery orders in October is fueling speculation that deflation will undermine the economic recovery. Technically, the December Japanese Yen completed a 50% correction to 1.1403. Finishing this retracement is helping to contribute to today’s weakness.
Stronger demand for higher yielding assets and an increase in German wholesale prices are helping to support the December Euro. Yesterday this market posted a daily closing price reversal bottom at 1.4667. This chart pattern will be confirmed if the market crosses 1.4782. A confirmation could drive this market to 1.4906 to 1.4962 over the short-run. If downside pressure persists, then look for a test of 1.4624.
The December British Pound is trading higher as traders await the release of the Bank of England monetary policy statement. Traders expect interest rates to remain unchanged along with the BoE’s quantitative easing plan. News that the U.K. and France have banded together to tax banker bonuses may be helping to give the market a boost. Technically oversold conditions are also contributing to the bounce to the upside. Exposure to foreign debt and a monstrous budget deficit could help to limit gains.
At this time the British Pound is trying to establish support inside of a retracement zone at 1.6289 to 1.6150. If a support base can be built in this zone, then look for a rally back to 1.6521 to 1.6604.
The December Canadian Dollar is up but remains rangebound between a pair of 50% levels at .9446 and .9505. A stronger stock market and firm crude oil prices may be contributing to the overnight gains.
