Investors Once Again Dumping Higher Yielding Assets
James Hyerczyk from ForexHound.com at 10/30/09
Investors are dumping higher yielding assets as the lack of follow-through to the upside in equities encouraged traders to turn into sellers from the start today. A bearish Michigan Sentiment Report is being blamed for igniting today’s break, but the groundwork was laid earlier in the week when the Dollar began to strengthen.
Yesterday’s gains in equities have been wiped out and downside momentum indicates that more losses are possible by the close. The better than expected GDP number released yesterday has been forgotten as traders are now focusing on the future and apparently do not like what they are seeing. The VIX or volatility indicator is showing signs of fear.
December Treasury Bonds and Treasury Notes are rising as traders dump equities and higher risk commodities in favor of the lower yielding U.S. debt instruments. Yields are falling as investors are seeking safety rather than return at this time.
The U.S. Dollar is up sharply as foreign currencies failed to take out yesterday’s highs overnight and this morning. This is a sign that yesterday’s rally was short-covering rather than fresh buying. Commodity sensitive currencies like the December Canadian Dollar, Australian Dollar and New Zealand Dollar are all showing large losses. The Dollar is also posting strong gains against the December Euro, Swiss Franc and British Pound. The Euro is in a position to post a weekly closing price reversal top. This usually indicates the start of a 2-3 week break. The December Japanese Yen is rising as Japanese investors repatriate investment funds. The Bank of Japan also announced it is ending its corporate debt buyback program. This is a signal that its stimulus program may be ending.
December Gold completed its 50% retracement last night and is now heading lower. Downside momentum is building. A stronger Dollar could trigger a break all the way back to another 50% level at $1028.80. A failure at this week’s $1026.90 low could trigger additional selling pressure to $1018.00.
December Crude Oil could not follow-through to the upside after yesterday’s rally. Technical factors are also contributing to the weakness as a key support angle has been broken at $78.05. The next downside targets are $73.77 to $71.83.
