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Stocks Trading Higher in Limited Action

James Hyerczyk from ForexHound.com at 01/07/10


Equity markets erased earlier losses after the release of the U.S. Weekly Initial Claims Report. Trading has been light, but nonetheless, today’s strength may be an indication that investors feel that tomorrow’s report may be on the friendly side.

Treasury futures have been trading mixed but inside of their recent ranges. Trading has been light as expected ahead of tomorrow’s employment report. The current range for March Treasury Bonds is 114’16 to 116’05. March Treasury Notes have fallen into a range between 114’28 to 116’08.

February Gold is under pressure because of the stronger Dollar. The current chart formation suggests a possible pull-back to $1108.10 - $1100.34. Downside momentum will depend on how strong the Dollar gets. The main trend is still up, however, with $1151.30 a key objective on the upside. The overnight weakness is profit-taking and is not expected to lead to a change in trend unless the Dollar Index breaks out over 78.45.

March Crude Oil is under pressure as traders are dumping commodity related contracts because of the rate hike in China and greater demand for safe-haven assets. By raising interest rates, China hopes to curtail excessive lending practices and cool off the economy. Traders are trimming long positions on expectations of a drop in demand for crude oil. Technically, this market is vulnerable to the downside with potential targets at 78.80 and 77.56.

The U.S. Dollar is holding on to its early morning gains at the mid-session. This morning’s weekly initial claims report showed that fewer workers filed for unemployment benefits last week. The ability to hold on to its gains this late in the trading session may be an indication that investors are anticipating a friendly U.S. Non-Farm Payrolls Report on Friday. Volume has dropped off noticeably which is a strong indication that the ranges for the day have been made.

The U.S. Dollar erased early overnight losses to move higher after China shocked the Forex markets with a surprise hike in interest rates. China’s move to curb excessive lending and curtail price increases drove traders into lower yielding, safe haven currencies. China’s central bank sold 3-month bills at a higher interest rate for the first time in 19 weeks.

Support continued to erode in the March British Pound after the Bank of England announced that interest rates would remain at 0.50% while leaving its asset purchase program in check. Overnight selling pressure took out weak longs who were trying to establish support at a retracement zone at 1.6036 to 1.5988. If selling pressure continues, the most obvious downside objective is the recent bottom at 1.5825.

Trumping the BoE meeting is the on-going heated debate over the budget deficit. Prime Minister Gordon Brown and Conservative opposition leader David Cameron are currently engaged in a heated discussion on how to handle the growing budget difficulties.

The March Euro weakened overnight as demand for higher risk assets dropped following the rate hike in China. At this time, the Euro hugging a retracement zone at 1.4349 to 1.4317.

Bearish comments from the new Japanese Finance Minister helped trigger a break in the March Japanese Yen while the U.S. Initial Claims number drove it to a four-month low. Overnight Naoto Kan said he wanted to see a weaker Yen. This announcement is leading traders to believe Japan may be more inclined to stem any sharp rise in its currency. Kan feels that his job will be to keep the Yen at an “appropriate level”. His job will be to keep up interest in Japanese exports.

Technically, the March Japanese Yen should remain weak as long as the downtrending Gann angle at 1.0718 remains intact. Based on the main range of .9876 to .1.1774, traders should look for a retracement to 1.0825 to 1.0611 over the near term.

The stronger Dollar is helping to pressure the Swiss Franc. Current price action suggests the formation of a daily closing price reversal top in the March Swiss Franc. Based on the short-term range of .9522 to .9766, traders should look for a minimum retracement to .9640 - .9612.

The March Canadian Dollar traded weaker ahead of the U.S. opening and is still under pressure at the mid-session. The current chart set-up suggests a possible closing price reversal top at .9716. The first downside objective is .9571. Weaker gold and crude oil prices are helping to weaken the currency.

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