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Strengthening Dollar Helping to Limit Gains in Commodity and Stock Markets

James Hyerczyk from ForexHound.com at 01/05/10


The strengthening Dollar is helping to limit gains in the commodity and stock markets at the mid-session. Earlier today, stocks and commodities rose from increased investor demand for higher yielding assets. Traders cited the stronger global economy and low interest rates in the U.S as two reasons for the renewed interest in higher yielding assets.

The lack of follow-through to the upside in U.S. stock indices after strong rallies in Europe and Asia have set up the equity markets for a short-term closing price reversal top. This could lead to the start of a 2 - 3 day break if confirmed.

U.S. Treasury Bonds and T-Notes are trading higher at the mid-session. Oversold conditions and profit-taking are most likely behind today’s strength. A support base has formed in the March Treasury Bonds which indicates that a value zone has been reached. The trade through the last main top at 115’29 turned the main trend to up and indicates further upside potential. A minor bottom has been reached in the March Treasury Notes which could launch a retracement to 116’24.

The strengthening Dollar is helping to pressure February Gold. The main trend turned up on the daily chart, putting this market on path for a potential retracement to $1151.30 to $1169.30 over the near term. Today’s action indicates a break to $1102.40 may be necessary to attract fresh buyers.

March Crude Oil traded higher overnight. One-by-one a series of tops is being taken out. These tops include 81.52 and 82.30. The next two upside targets are 82.81 and 83.60. Stronger manufacturing numbers are triggering expectations for a rise in demand for oil products.

The USD JPY broke sharply this morning following the release of a housing report which showed the number of contracts to buy previously owned U.S. homes fell in November more than analysts had estimated.

Overnight weakness set the table for today’s opening weakness, following Monday’s closing price reversal top. Last night’s follow-through to the downside was confirmed which could mean the start of a correction all the way back to 88.57. The first downside objective today is 91.08 which is an uptrending Gann angle from the 84.83 bottom.

At the mid-session, the Dollar index is mounting a strong comeback because of oversold conditions. Don’t be surprised if this index closes higher for the day. A short-term retracement to 77.77 - 77.93 is likely.

Overnight, the U.S. Dollar continued its slide as investors sought higher risk assets. Overnight an index representing a trade weighted basket of currencies turned its main trend down on the daily chart on a trade through 77.32. The chart pattern now suggests a correction to 76.31 to 75.80 is imminent. This move would represent a normal retracement of the entire 74.17 to 78.45 rally. Traders are citing the stronger global economy and low interest rates in the U.S as two reasons for the renewed interest in higher yielding assets.

The March Euro is weakening at the mid-session after showing early morning strength. The bigger picture suggests a move to 1.4680 is likely. Minor resistance at 1.4503 could slow down the current upside momentum. The weakening Euro is setting up for a pull-back to 1.4350 - 1.4319.

The main trend remains down in the March British Pound. Buyers tried to, but failed to hold the British Pound in the retracement zone at 1.6036 to 1.5988. Concerns about the U.K. economy and the upcoming election are putting pressure on the Cable.

The March Swiss Franc showed overnight strength, but is now in a position to mount a closing price reversal top after an eleven day rally. Based on the short-term range, watch for a retracement to .9640 to .9612. The bigger picture suggests a rally to .9806 - .9873 is possible following this short-term correction.

Rising gold and crude oil prices as well as firm equity market helped to firm the March Canadian Dollar. The main trend is up with 9741 the next up objective. A key retracement level at .9574 is the new support. A firming Dollar is helping to trigger intra-day profit-taking which could help form a closing price reversal top.

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