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Stocks Rally after Delayed Reaction to Friendly Beige Book Data

James Hyerczyk from ForexHound.com at 01/13/10


U.S. equity markets finished higher after the Fed released friendly Beige Book data but remained inside the ranges for the week. The lack of follow-through to the downside following Tuesday’s sell-off helped trigger a strong short-covering retracement rally early in the trading session. 


Earnings, bank fees and taxes were on the minds of traders all day. These factors may have helped to limit gains.  The markets also reacted positively to the Congressional testimony by Wall Street Honchos.


March Treasury Bonds gave back most of Tuesday’s gains after testing a 50% price level at 116’28. The new short-term range is 114’16 to 117’02.  The first downside objective at 115’25 was reached at the mid-session. Talk of higher interest rates from Fed President Plosser and in the U.K. pressured fixed income instruments today.  The Beige Book data did not offer anything new but traders realize that this may mean higher interest rates later in the year.


February Gold traded better after testing a key 50% retracement level at $1119.10.  The actual low was $1118.50.  This trading action triggered a short-covering rally which should take the market back to $1140.70 over the short-run.


News that China may be ending its stimulus, and signs that the cold weather on the East Coast may be moderating helped chase speculators out of March Crude Oil the past three days.  Based on the range of 73.52 to 84.45, the charts indicated a break to 78.99 was likely over the near-term. Today’s break took the market down to 78.80 where new buyers came in. The new upside objective is 81.63.


The U.S. Dollar finished lower after a choppy trading session. Even upbeat Beige Book data failed to stimulate buying interest in the Dollar. The Greenback traded higher last night after Germany announced that its economy had shrunk more than expected in 2009.  Hawkish comments from Federal Reserve Bank of Philadelphia President Plosser also triggered a rise in the Dollar. 


The Dollar could not hold its earlier strength and broke sharply lower ahead of the New York opening before mounting a strong recovery in the Cash Dollar Index to 77.03.  Increased demand for higher yielding assets was the theme today.


This afternoon’s Beige Book confirmed the improvements in the U.S. economy but offered no solid evidence that the Fed is getting ready to raise interest rates sooner than expected.


The main trend turned up in the March British Pound overnight on the trade through 1.6240.  The next upside target is 1.6355.  Watch for a technical bounce at this level.  The British Pound is being boosted by hawkish comments from Bank of England member Andrew Sentence.  He said that the BoE has done enough to stimulate the economy and that interest rates should be allowed to rise this year. 


The March Euro recovered after overnight weakness triggered by Germany’s bearish GDP report.  Short-covering ahead of Thursday’s European Central Bank meeting could have been the catalyst behind the turnaround.  The charts indicate the Euro is still on pace for a near-term test of 1.4680. Trading on Wednesday was primarily sideways on low volume.


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