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U.S. Equity Markets Soar as Dubai Debt Concerns Ease

James Hyerczyk from ForexHound.com at 12/14/09


U.S. stock index futures soared after Abu Dhabi announced a $10 billion infusion into cash strapped Dubai World.  This news helped alleviate some of the concerns that have been holding back the rally in equity markets since the Dubai debt news broke in late November. December E-mini Dow futures rallied to a new high for the year.  The December E-mini NASDAQ is trading slightly below its contract high at 1816.25.  The December E-mini S&P 500 stopped just short of a new high at 1118.00.  The next upside objective of this rally is a key 50% price level at 1122.00.  Since traders have been reluctant to buy strength, watch for an early morning sell-off to set up the first buying opportunity.


Treasury futures are trading slightly better.  March Treasury Bonds have been selling off since the Dubai debt news broke on November 27th. Traders have been building a risk premium into yields since that date.  This has been driving up interest rates while driving down Bonds.  The overnight news may cause some traders to lighten up on their concerns about a default in Dubai which could trigger a much needed short-covering rally. 


The U.S. Dollar is backing off a two-month high versus a trade-weighted basket of currencies on the news that Dubai received $10 billion in financing from Abu Dhabi to pay part of the debt held by state-owned Dubai World. This event is helping to alleviate one of the concerns which drove traders into the Dollar last week, the others being downgrades in Greece, Portugal and Spain. The overnight selling pressure is a sign that traders may be less risk averse and looking at taking on more risk today in the higher yielding currencies.


The main concern for investors this week is the Federal Reserve Open Market Committee meeting on December 16th.  Since its last meeting in November, the U.S. unemployment rate has dropped to 10% and retail sales have risen above expectations. Job losses and the lack of consumer spending are two key determinants studied by the Fed.  Traders are looking for the Fed to look at these two reports and perhaps issue a more hawkish statement.  A dovish statement will be a surprise which is not likely to bode well for the Dollar.


The March Euro is up slightly after bouncing off a 50% price at 1.4594.  The initial thrust in this market overnight was provided by the surprise news out of Abu Dhabi regarding its partial bailout of Dubai World.  Gains have been muted, however, by the news that Euro Zone industrial production fell for the 18th month while employment extended its decline.


The news out of Dubai is not helping the March British Pound.  Cable traders have enough on their tables than to worry about sovereign debt issues in the Middle East.  The U.K. has budget and debt issues of its own.  Last week, traders had to deal with the threat of a credit rating downgrade.  While this fear has been alleviated, concerns this week will be about inflation growth and jobless claims.  Technically, this currency is trying to build a support base inside of a retracement zone at 1.6292 to 1.6154.


The U.S. Dollar is under pressure versus the Japanese Yen as traders reverse positions initiated last week because of debt concerns in Dubai. The chart indicates the possibility of a rally of the March Japanese Yen into Gann angle resistance at 1.1239.


The March Swiss Franc is trading slightly better overnight.  Support is being provided by last week’s low at .9651. Strength is being indicated by this currency’s failure to hold the old main bottom at .9690.  This is usually a sign that conditions are oversold, and that the last drive lower was most likely stop driven rather than fresh selling. 


Weaker Gold and crude oil prices could be weighing on the March Canadian Dollar overnight.  Technical factors could also be contributing to the weakness.  The inability to break the U.S. Dollar last week coupled with a potentially bearish chart formation is helping to weaken prices.  Support is at .9365.  Resistance drops in at .9446


The weaker Dollar is helping to support February Gold this morning.  A key 50% price at $1107.40 along with last week’s low at $1110.20 is providing the strongest technical support. This market is dependent on the Dollar at this time.  A hard sell-off in the Dollar could trigger a retracement to $1169.00.


March Crude Oil is in a weak position on the charts. Currently this market is trading under a key .618 price at 73.63.  Regaining this level could trigger a short-covering rally back to 75.53.  Sharply higher equity price and a stronger Dollar will provide support, but it is going to take speculators to drive this market higher.

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