China Import/Export News Triggers Renewed Interest in Risky Assets

James Hyerczyk from ForexHound.com at 01/11/10

U.S. equity markets are expected to open stronger as traders renew their demand for higher risk, higher yielding assets. Without any economic reports to concern investors, expectations are trend day.  There may be a break early in the session as U.S. traders have been reluctant to chase this market after higher openings. Earnings season begins after the close today.

Demand for higher yields is pressuring the March Treasury Bonds and March Treasury Notes.  Traders are attempting to raise the yields in Treasuries to keep up with the high yields in the stock market. 

The weaker Dollar triggered a strong surge in February Gold.  The first upside objective at $1151.30 was reached fairly easily overnight.  The next upside target is $1169.30.

News of strong demand from China during December helped trigger an upside breakout in March Crude Oil.  Imports were up a whopping 24% during the month. Upside momentum, increased demand and a weaker Dollar could drive this market to 90.00 this week.

The U.S. Dollar is trading sharply lower as China reported a 17.7% increase in exports and a 55.9% increase in imports.  The surge in exports was the first rise in 14 months.  Pre-report guesses were for only a 4% increase. Due to the timing of the report, and its extreme bullishness, the Australian and New Zealand Dollars both had rare gap openings Sunday night.

Dollar bulls are still reeling from the soft U.S. Non-Farm Payrolls report on Friday.  Traders had been looking for the report to show that job losses had remained flat or perhaps that new jobs had been created during December.  Instead the government reported that 85,000 new jobs were lost. 

Adding more fuel to the bearishness were comments from St. Louis Fed President James Bullard who signaled that interest rates weren’t going to move higher over the near-term.  Bullard said, “interest rates may remain low for quite some time”.  He also added that the Fed’s zero interest rate policy is “on hold”.  He couldn’t have made his position any clearer. In addition to talking about the future direction of interest rates, Bullard said the Fed faces a challenge when adjusting its asset-purchase program because of the possibility of inflation.

With the light economic calendar today, traders will have a chance to digest Friday’s Non-Farm Payrolls report and its impact on the economy.  So far the bets have been placed on a weaker Dollar and renewed interest in higher yielding assets as evidenced by the surge in equity and commodity prices.  Traders should note that the soft employment report has not changed the outlook for a recovery, but it has pushed back the Fed’s timetable for increasing interest rates.

Later during the trading session, Atlanta Federal Reserve President Dennis Lockhart speaks to the Rotary Club of Atlanta.  Look for him to reiterate what Bullard already said last night.  His comments are expected to be dovish.

The March U.S. Dollar Index is in a downtrend.  Expectations are for the weakness to continue until this index reaches a major 50% price level at 76.53.

The March Euro is trading higher as investors reduce bets that the Fed will raise rates after last week’s weaker-than-expected U.S. jobs report.  Technically, the Euro broke through Gann angle resistance at 1.4539.  It also broke out to the upside after forming a support base.  The first upside target is 1.4677, followed by 1.4786.

The March British Pound broke away from a retracement zone at 1.6036 to 1.5988.  A new higher bottom was also formed at 1.5890.  The main trend will turn up on a trade through 1.6235.  The first upside target is 1.6351, followed by 1.6475.

The March Japanese Yen is trading stronger after confirming last Friday’s closing price reversal bottom on the overnight move through 1.0843.  At this time a Gann angle at 1.1049 is the next upside target.  Look for an acceleration to the upside if this angle is broken.  The chart indicates there is room to the downside with 1.1273 to 1.1401 the next upside target.

The March Swiss Franc broke a downtrending Gann angle at 9800 and a 50% price at .9806. This move helped to accelerate the rally to the .618 retracement level at .9873.  The next upside target is a slower moving Gann angle at .9945.  Gains could be limited because of the threat of an intervention by the Swiss National Bank.  Although this action will be meant to curtail the Swiss Franc’s rise versus the Euro, it should also have a positive effect on the U.S. Dollar.  Overnight, Swiss central bank President Hildebrand said intervention was possible to prevent “any excessive appreciation”.  He also added that the SNB will “monitor exchange market developments very closely.”

Surges in natural gas, crude oil and gold have put the Canadian Dollar in a strong position.  Overnight the March Canadian Dollar exceeded the October 20, 2009 top at .9740.  This sets up a further rally to the October 15th top at .9792.  Gann angle support is at .9603.