A geopolitical event is helping to give March Crude Oil a boost overnight.  It’s been reported that Iranian troops entered an Iraqi oilfield.  This news triggered a short-covering rally overnight while sending this market back above a key resistance price at 75.53.  The first upside objective of this current rally is 77.85, followed by 78.09.

Global equity markets are rising overnight as traders increase demand for higher risk assets.  The primary driver for this week’s weak trade in the equity markets has been aversion to risky assets due to credit concerns in the Euro Zone.  The downgrade of Greece’s credit rating fueled yesterday’s sell-off, but the lack of new bearish developments overnight has triggered renewed demand for higher risk assets.

The key to today’s action will be how the March E-mini S&P 500 reacts following a test of 1101.75.  If sellers step up at this price then look for the start of another test of 1090.00.  Regaining this level could trigger further short-covering.

The rally in the March Treasury Bonds since the Fed announcement on Wednesday appears to be a “sell the rumor, buy the fact” situation.  It looks as if traders had already priced in the impending rate hike.  Yesterday’s downgrading of Greece’s debt sent traders into the Treasuries in a flight to safety rally. The charts indicate that 120’03 is a possible upside target if debt concerns continue to escalate.  Short-term oscillators indicate overbought trading conditions.  A weaker Dollar and stronger equities could trigger a profit-taking break back to 118’06.

Overbought market conditions and reduced demand for safe-haven assets helped to weaken the U.S. Dollar overnight.  Technically, both the Relative Strength Index and the Stochastic Oscillator have placed the Dollar into overbought territory. Reduced concerns about sovereign debt issues in Greece, Spain and Portugal have helped increase demand for higher risk assets. The combination of these two factors could pressure the Dollar today.

The Dollar reached a three-month high this week, driven by a flight to safety rally spurred by a downgrade in Greece’s debt and position adjustments because of changes in Fed policy regarding the possibility of a shift toward a tighter monetary policy.  There have also been signs the Dollar is beginning to react positively to good economic news.

The March Euro is trading slightly better.  Oversold conditions may have stopped the decline, but the news that business confidence rose to a 17-month high in December is most likely the catalyst behind the overnight strength.

Increased risk appetite is contributing to the strength in the March British Pound.  Overnight, the Bank of England Financial Stability Report said the U.K. financial system is “significantly more stable”.  It did add, however, that the “probability of default by U.K. real estate companies has increased significantly”.  The British Pound could see volatile trading over the next couple of months as the Bank of England begins to phase out of its quantitative easing program. The possibility that U.K. households will continue to face weakening labor conditions as well as tightening credit conditions could fuel further weakness.  Finally, the threat of a cut in the U.K. debt rating from AAA remains a concern among long-term investors.

Last night the Bank of Japan left its benchmark interest rate at 0.10%.  In addition, it hinted that its biggest concern remains deflation.  Overall there were no surprises in the policy statement.  Reduced demand for safe haven investments is pressuring the March Japanese Yen this morning.

Stronger crude oil, equities and gold are helping the Canadian Dollar recover some of this week’s losses.  Although March Canadian Dollar traders showed a firm commitment to the downside yesterday, no significant trend changes took place and the market has rallied back inside of its 60 day range.

Oversold conditions are giving the March Swiss Franc a boost overnight.  Yesterday’s spike to the downside may have been too much to handle.  Traders sold the Swiss Franc yesterday on concerns the sovereign debt issues in Europe would adversely affect the Swiss Banking system.  Now that debt concerns have eased, traders are using this lull in the market to take profits after yesterday’s surge.

The slightly weaker Dollar is helping to stabilize February Gold.  This market is hovering around a key 50% price at $1107.40.  Regaining this area could fuel the start of a short-covering rally.  A further strengthening in the Dollar could trigger another plunge in gold to $1079.00.  Everything is hinged on the Dollar at this time.

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