U.S. stock indices are trading in a tight range overnight as investors await testimony before the House Financial Services Committee by Fed Chairman Bernanke. Expectations are for Bernanke to talk about the state of the employment situation as well as addressing whether more financial stimulus is required.
Investors will be looking for clues as to if or when the Federal Reserve will begin to hike interest rates in 2010. Signs that rates will rise will likely support the Dollar which could put pressure on U.S. stock markets. Technically, the March E-mini S&P 500 is indicating that this market wants to move higher. The overnight trade took out a .618 retracement level at 1107.00. This price is new support. A failure to hold this level could trigger a break to 1094.50.
Slightly better equity markets overnight are helping to pressure Treasury futures. Currently, the March Treasury Bonds are in a downtrend but trading inside a retracement zone at 117’01 to 116’14. Concerns over the Fed hiking interest rates are keeping bullish traders away from the long-side.
April Gold traders are waiting for direction from the U.S. Dollar. The trading action late last week suggests that traders are looking for the Dollar to weaken. The main trend will turn up on a trade through 1126.40.
April Crude Oil traders also appear to be betting on a weaker Dollar. The main trend turned up late last week when this market took out 78.04. Look for a possible technical bounce off 80.95.
The U.S. Dollar is trading mixed against the majors in a tight and narrow range. The trade weighted Dollar Index is trading lower in a follow-through move following Friday’s closing price reversal top on the daily chart. The main trend is up and will not change to down unless 79.61 is violated.
The lack of major U.S. economic reports today could keep the Forex markets in a tight range until Fed Chairman Bernanke speaks at 10 AM CT. His comments could move the markets. Today, he is expected to speak before the House Financial Services Committee about employment growth prospects and whether fiscal stimulus is needed.
Traders will be looking for Bernanke to give them clues about the timing of future U.S. interest rate hikes. If the Fed Chairman’s comments indicate tightening then the Dollar is likely to rise. A dovish tone will be bearish.
The March Euro is weakening after an early session surge following Friday’s closing price reversal bottom. The overnight follow-through rally stalled inside a minor retracement zone at 1.3615 to 1.3656. The main trend remains down. A trade through 1.3788 will turn the main trend higher on the daily chart. Looking at the bigger picture, this market is inside a major retracement zone at 1.3800 to 1.3483.
In order for this market to rally, there has to be an unexpected event such as major buying by China or Russia. If this becomes the case and the market rallies through 1.3788, then look for the move to continue to a major 50% level at 1.4055.
Even if the ECB bails out Greece, there is no guarantee the Euro will rally. The fear is the ECB will have to keep interest rates at historically low levels while the U.S. is getting ready to remove stimulus and then perhaps begin raising rates. Fiscal tightening in Greece, Portugal and Spain will likely help to keep recessionary pressure on the Euro. This will force the ECB to maintain its loose monetary policy.
A short-term rally may be just what speculators have been waiting for because of their desire to maintain short-selling pressure on the Euro. Speculators know that the Fed and the ECB are not on the same page and have different timetables regarding the removal of stimulus. According to the recent FOMC minutes, the Fed is getting ready to lift stimulus while the ECB may have to abandon its plans to begin withdrawing stimulus. In addition, the record 59,422 shorts currently being reported in the CFTC Commitment of Traders Report have shown no signs of letting up.
The March British Pound is trading higher but inside of Friday’s range. Oversold conditions may lead to a short-covering rally which could take this market back to 1.5583 to 1.5637, but the trend will not turn up unless 1.5814 is violated. The economy and the U.K. budget deficit continue to weigh on the Pound. In addition, the country is facing an election in which there is no clear leader. Furthermore, investors seem to be losing confidence in the Bank of England’s ability to stem the economic decline.
The March Japanese Yen is trading higher overnight following Friday’s closing price reversal bottom. This current break is holding inside of a retracement zone at 1.0950 to 1.0886. The current chart pattern suggests a rally to 1.1074 to 1.1126 is likely over the near-term. Appetite for risk seems to be waning overnight which is leading to the strength in the Japanese Yen.
Friday’s strong rally in the Euro helped trigger a closing price reversal bottom in the March Swiss Franc. This helps to diminish the chances of another intervention by the Swiss National Bank which will be friendly toward the Swiss Franc. Clearly the Swiss Franc will take its direction from the Euro today. The main trend is down and will turn up on a trade through .9334. If this occurs, then look for a rally to .9526 to .9608.
The March Canadian Dollar is feeling upside pressure overnight. Higher gold and crude oil are helping to give the Canadian Dollar a boost. In addition to being supported by the rise in commodities, the Canadian Dollar faces virtually no risk exposure while benefitting from an improving economy. Look for a possible technical bounce at .9650 today, but a failure to hold this level could trigger an acceleration to the upside.
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