Stocks Produce Modest Gains in Lackluster Trade
James Hyerczyk from ForexHound.com at 01/26/10
U.S. equity markets produced modest gains on Monday. The trading action suggests that short-covering and bottom picking were most likely the catalysts behind today’s rally. Volatility slowed compared to last week’s trading action. Investors may be standing aside as they await Wednesday’s Fed FOMC announcement.
Treasury futures traded lower as demand for lower yielding assets fell. Demand for safer assets helped to lower yields and boost the March Treasury Bonds and Treasury Notes last week. This bodes well for the next auction because it looks as if the Treasury will be able to offer lower yields. Supply concerns are likely to continue to limit gains, however.
February Gold mounted a strong comeback following last week’s sharply lower trade. Investors dumped commodities because of the stronger U.S. Dollar. News that China was beginning to shift toward a tighter monetary policy means less demand for precious and industrial metals. Furthermore, a slow down in demand will mean lower inflation which lessens the need for gold as a hedge. Most of Monday’s strength could be attributed to short-covering and profit-taking.
March Crude Oil traded sideways-to-higher following last week’s collapse. The prospect of a stronger Dollar and weaker demand from China were the driving forces behind the weakness. New regulations regarding position limits also led to massive liquidation. Cold weather moving to the East may drive up demand for heating oil which could underpin crude oil this week.
The U.S. Dollar eased a bit on Monday against most major currencies as investor sentiment shifted back toward putting “risk on”. News today centered on Greece’s effort to shore up its finances by offering five-year bonds. Apparently the offering was well received by the investing public as demand exceeded 20 billion Euros. Early expectations were for demand of 3 to 5 billion Euros. This indicates the European investing community has faith and confidence in Greece’s ability to pull out of its fiscal mess.
The March British Pound traded sharply higher all session ahead of tomorrow’s GDP report. Today’s action looked a little stronger than short-covering so speculators could be anticipating a robust report. The U.K. economy was the driving force behind this market’s recent weakness. Oversold conditions are likely to help the Pound strengthen over the near-term or until more bad economic news hits the wires. Traders are looking for GDP to increase by 0.4% after a 0.2% contraction.
The March Japanese Yen traded weaker following a volatile week which saw the Greenback lose ground. News that Bernanke would be reappointed helped to support demand for higher risk assets. This pressured the Japanese Yen. The Bank of Japan is expected to leave interest rates and stimulus alone at this week’s meeting, but could threaten to intervene if this currency pair rallies above 1.1200.
The March Swiss Franc traded higher throughout the day after continuing last week’s late reversal. The chart pattern suggests that this market is likely to continue to weaken until it reaches a key support zone at .9702 to .9743. Traders should also watch the Euro. A sudden drop in the Euro versus the Swiss Franc could lead to renewed talk of intervention by the Swiss National Bank.
The March Canadian Dollar continued to weaken despite firm gold, crude oil and equity markets. Technically, this market is oversold which should begin to attract bottom pickers. The chart indicates that a rally through .9510 is likely to trigger an acceleration to the upside.
