The December British Pound is getting hammered this morning, following an unexpected drop in U.K. 3rd Quarter Gross Domestic Product.  Today’s news indicated the U.K. recession worsened as it extended into its 6th straight quarter.  Traders had estimated a rise in GCP by 0.1% while actual results showed a drop of 0.4%.  

This report indicates that the Bank of England will keep interest rates at historically low levels for an extended period of time.  The poor showing will likely mean that the BoE will continue to fund its asset-purchase program.

Speculators had been driving up the British Pound the past 10 days in anticipation of the Bank of England ending its asset-buyback program.  Today’s selling pressure is likely to drive this market down to 1.6198 over the near term.

The December Euro is holding steady above the psychological $1.50 area.  Trading has been light and the range tight despite another good German Business Confidence Report.  Traders continue to keep the volatility down out of fear of stimulating the ire of European Central Bank members who want to prevent a rapid rise in the currency.  Higher prices could be triggered today if the U.S. corporations continue to report stellar earnings.  

Technically there are too many short Dollars out there which has put this currency in overbought territory.  The further the Euro rises above $1.50, the more likely the ECB will turn up talk of an overextended currency and its negative effects on the Euro Zone’s ability to mount a strong recovery out of the recession.  

Look for the U.S. Dollar to continue its rally over the Canadian Dollar.  Traders continue to sell Canadian Dollars after the Bank of Canada said earlier in the week that the rise in the currency had offset recent positive economic gains.  Their stern comments amounted to a verbal intervention which has scared traders into taking profits in their long Canadian Dollar positions.  Losses in the December Canadian Dollar may be limited by strength in stock indices and crude oil.

Stock Index futures are holding steady.  Great earnings news from Amazon late yesterday is providing most of the support.  This quarter’s earnings season has helped boost demand for equities.  Look for this trend to continue as long as foreign buyers are willing to borrow the Dollar and reinvest in foreign stock markets.  Although prices seem lofty to U.S. investors, every drop in the Dollar’s value makes stock prices look more attractive.  Unless the Dollar begins to mount a serious rally, look for stock indices to continue to rise.  

Treasury futures are trading lower overnight.  Traders are beginning to price in the new supply which hits the market next week.  At this time the December Treasury Bonds and Treasury Notes are stuck in a value zone.  This is causing the tight and limited ranges.  The recent surge in equity prices has been keeping downside pressure on the Treasuries.  Each stock market rally encourages T-Bond and T-Note investors to ask for higher yields in order to compete with those being offered in the equity markets.  Look for a sideways to lower trade in the Treasuries unless the stock market begins to weaken.

December Gold has been range bound for a week.  The main range is $1072 to $1043 with a mid-point at $1057.50.  This morning gold is demonstrating some strength by trading over this mid-point.  Traders seem to be reluctant to buy gold at current levels despite a new 14-month low in the Dollar earlier this week.  $1100 is the next likely target should gold go through the top end of the range with strong buyers behind it.  A break through the low end of the range should trigger an acceleration to $1028.80.

December Crude Oil briefly touched $81 last night before backing off.  Speculation, higher equity prices and a lower Dollar are providing the best support.  Traders are speculating that a global economic recovery will increase demand.  The actual numbers reveal that supply remains high and demand low but traders seem willing to ignore those facts.  


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