Thursday, December 24, 2009

Despite the higher equity markets overnight, the lack of upside momentum is making traders leery of a possible short-term profit-taking correction ahead of tomorrow’s holiday.
Weakness in the Dollar could help to trigger a sell-off.

Treasuries are trading flat to better. March Treasury Bonds and March Treasury Notes are trying to recover after a hard sell-off this week. Selling pressure should resume after the
holiday as traders are beginning to price in the possibility of an interest rate hike in 2010. Aggressive buying by Japanese investors helped to drive up yields earlier in the week.

The U.S. Dollar is trading lower overnight under thin, pre-holiday selling pressure. Although it is difficult to gauge the actual reasons behind the weakness, it’s easy to speculate
that the huge run-up in the Dollar the past few weeks is making it ripe for profit-taking.

The most important thing that traders should take away from these markets at this time is that sentiment is shifting away from risk-based decision making to more fundamentally driven
decision making. The rally earlier …