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U.S. PMI Reports Boosts Demand for Equities

James Hyerczyk from ForexHound.com at 11/02/09


A stronger than expected U.S. PMI Report, helped boost U.S. Stock Indices this morning. The report indicated the U.S. economy was expanding and helped relieve some of the bearish pressure that had been building on the markets. Today’s action is most likely short-covering as no major tops were threatened as the markets rallied. The charts indicate that the December E-mini S&P 500 is likely to retrace to 1064.00 to 1072.00 before attracting new selling pressure. The December E-mini Dow held a major .618 retracement level at 9630 and is now poised to retrace back to 9850 to 9901. The December E-mini NASDAQ traded lower into a .618 price level at 1655.50. This low also held a main bottom at 1652.75. The subsequent rally is carrying enough upside momentum to retrace to perhaps 1717.25 to 1732.00.

December Treasury Bonds and Treasury Notes fell following the release of the friendly PMI Report as yields rose slightly. Trading is expected to be subdued this week as large investors stand aside before the Fed’s FOMC meeting on November 4th.

The U.S. Dollar opened the overnight trade better but turned lower following a strong PMI number out of China. The New York opening was weak but the Dollar accelerated to the downside after the release of a better than expected U.S. PMI Report. This report showed that the U.S. economy was expanding.

Although the Dollar weakened on the news, the selling action was not enough to change the trend to down, but merely indicates a technical retracement of last week’s sharp rally.
While the Dollar is retracing its rally, the currencies are posting gains with the exception of the Japanese Yen and British Pound. Higher yielding assets are posting gains today. This is most likely short-covering and position evening rather than fresh buying.

December Gold surged this morning as the Dollar weakened. Gold is also being supported by investment inflows and traders looking for inflation to begin showing. At this time it’s not all about the Dollar. Although a stronger Dollar may delay or limit gains in Gold, it looks like buyers are willing to come in on the dips. In addition, the gold market may start to get some of the money that leaves the equity markets.

The stronger than expected PMI number helped to trigger a rally in December Crude Oil this morning. Any report which shows expansion in the economy seems to be read as bullish by oil traders since this market is being run by speculators. Short-term, the supply and demand situation is still showing a glut of oil, but traders have chosen to focus on the long-term and a potential recovery in the economy. Higher demand for equities and a weaker Dollar are also being supportive.

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