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Stocks and Dollar See−Saw in Mixed Trading

James Hyerczyk from ForexHound.com at 12/03/09


Stocks traded higher overnight on a pick-up in demand for higher yielding assets in Asia and Europe. The news Bank of America was going to pay back its tarp loan also helped drive up bank stocks. Equity futures opened flat in New York but were boosted following a report showing an improving economy. News jobless claims fell last week sent a signal the economy was improving.

Technically, the December E-mini S&P 500 made another higher-high on its way to the major 50% price at 1122.00. Profit-taking in bank stocks after a gap higher opening helped to weaken equities about mid-morning sending the S&P lower. The early rally helped to erase yesterday’s closing price reversal top, but today’s action is close to putting this market back into the same position.

March Treasury Bonds have been under pressure all morning. The better than expected U.S. initial claims report sent yields up early in the session, but the market has been able to find support slightly below a major 50% level at 120’06. Part of the sell-off was attributed to positioning ahead of tomorrow’s U.S. Non-Farm Payrolls report. Others feel that the sell-off is traders getting ready for an additional supply next week at the Treasury’s $74 billion auction of notes and bonds.

The U.S. Dollar is trading mixed against most major currencies. The futures index has been trading both sides of unchanged since recovering from overnight weakness. This week’s low at 74.31 and last week’s low at 74.27 continue to hold as support.

The European Central Bank left interest rates unchanged as expected and announced its plan to begin withdrawing stimulus funds from the financial system. The December Euro rallied on the news but backed off from making a new high above 1.5144 when ECB President Trichet called for a stronger Dollar. The December Japanese Yen continued its slide three days after the Bank of Japan announced additional stimulus measures.

February Gold surged to a new all-time high overnight at 1227.50 on heavy Asian and European buying. This market weakened after the Dollar began to stabilize and at one point was actually trading lower. Today’s action indicates that the market is still sensitive to the movement of the Dollar. There are signs developing that perhaps excessive speculation has put this market in an overbought position. A break under $1204.00 could trigger an acceleration to the downside. A lower close forms a closing price reversal top.

Bearish supply/demand fundamentals are capping gains in March Crude Oil. Higher equity markets are trying to give this market a boost, but the mixed trading in the Dollar is limiting its upside movement.

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