The Dollar is trading weaker overnight as investors believe the U.S. economy is on the road to recovery. Traders are seeking higher risk currencies although this demand is not spreading to the equity markets. It will be interesting to see if a sharp break in equities will flip the currency markets with the Dollar coming out on top by the close.
The September British Pound is trading slightly better overnight leading to speculation of a higher futures opening. A new minor bottom has been formed at 1.6381. A trade through 1.6585 will turn the main trend up and could signal the start of additional upside pressure to the high of the year at 1.6742.
December Gold is trading flat to better. Traders are once again buying gold as a hedge against the weaker U.S. Dollar. Inflation is not an issue at this time, but some of the buying can be attributed to this reason.
Treasury markets are trading slightly better. Some feel the recent decline may be overdone and the Treasury Bonds and Notes are due for a technical rally. The start of today’s action may pressure the Treasuries early but a better than expected reception by investors for the new debt hitting the market could trigger a late session rally.
Equity markets are expected to open flat to lower based on overnight action. Although there was not a hard sell-off, stock equity futures were not able to trade above yesterday’s highs following a mostly sideways trading day.
Monday’s bullish New Home Sales Report was enough to drive equity markets higher but traders were reluctant to trigger a strong breakout to the upside. The sell-off on bullish news is a sign that the equity rally may be running out of steam as investors approach the markets more cautiously at current levels.
Weakness in Europe and Asia appears to be setting off the selling pressure in the U.S. markets. While better than expected U.S. corporate earnings have been the catalyst of the recent two week surge in equity prices, Europe is just beginning its earning season. Traders will be watching overseas corporate earnings for clues as to whether the European companies are weathering the current global recession as well as their U.S. counterparts.
U.S. investors will be waiting for confirming data from Europe over the near-term as there is still a lot of money on the sidelines. U.S. money managers are beginning to wonder how high equity markets have to go in order to lure investors back into the market. Over the past two weeks, traders have witnessed the power of new money coming into the market. This fresh money came from aggressive portfolio managers who get paid to try to beat the market.
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