U.S. stock indices are expected to open flat this morning. The stronger Dollar on Wednesday kept a lid on prices despite better than expected U.S. economic news and a positive FOMC report from the Fed.  The trading action shows that risk is still a concern for investors, and that traders are reluctant to buy strength. This may mean that another correction may be necessary to attract fresh buying. The psychological 1000 barrier in the March E-mini is providing resistance this morning.

The March Treasury Bonds turned the main trend to down following yesterday’s friendly U.S. economic reports. Without any new supply hitting the market this week, bond traders will be focused on the U.S. economy. Better than expected economic reports should continue to push yields up and bonds and March Treasury Notes lower.

News that the International Monetary Fund is getting ready to resume gold sales is pressuring the precious metal. It’s hard to tell at this time if there is enough liquidity available for the gold market to absorb the sales. More supply is leading to price weakness. A break out in the Dollar is likely to keep the pressure on gold prices although short-term oversold conditions may trigger a slight rebound to the upside.

The U.S. Dollar is trading mixed overnight. The focus this morning will be on both risk and economic data. This could create volatile trading conditions as some currencies are poised to break recent bottoms while others are finding support.

The March Euro remains under pressure overnight after the sell-off on Wednesday erased all of the previous day’s gains. Both positive U.S. economic data and renewed concerns over debt issues in Greece helped drive the Euro sharply lower.  

The Dollar rose against the Euro on Wednesday after fresh economic data showed improvements in housing, import prices and industrial production. The FOMC minutes released late in the session confirmed that the Fed is strongly considering becoming the first major economy to begin reducing stimulus measures. In addition, this report indicated that the Fed discussed strongly the possibility of a hike in the discount rate. While not actually resuming a “tight” economic policy, a move by the Fed to raise the discount rate will be one of the first signs that it is poised to begin lifting the Federal Funds rate later in the year if necessary.

Today, traders will be focusing on Conference Board and Philadelphia Fed data to reaffirm the strength in the U.S. economy.  The Philly data is expected to move up from 15.2 to 17.0.  

In addition to the better than expected U.S. economic news, Euro traders reacted negatively to the news that Moody’s Investor Services downgraded certain Greece hybrid bank debt after it was revealed that a number of unsecured transactions may have been used to conceal the debt.

The news that the European Central Bank extended loans of more than 15 billion Euros or $20.4 billion over February 11, 12, 15 and 16, is a sign that the region may be nearing a liquidity crisis. Furthermore, aggressive short traders failed to budge even after Tuesday’s strong short-covering rally and on reports that the EU had approved Greece’s plan to shore up its budget.

Finally, it has been reported that the International Monetary Fund is poised to resume gold sales in an effort to raise cash. This move strengthened the Dollar and may be a sign that the IMF is getting ready to inject cash into the Greek economy.

The March British Pound remains under pressure because of the weakening economy and the possibility of a debt rating downgrade should the budget deficit continue to grow. Investors may be losing confidence in the Bank of England’s ability to pull the economy out of its tailspin. Most traders feel that the U.K. economy is failing behind the U.S. economy and may be one of the last to post signs of a recovery.

The March Japanese Yen is trading higher this morning after a sharp break on Wednesday. Although strong U.S. economic reports could turn this market around today, last night’s announcement by the Bank of Japan to reduce its buying of Japanese Bonds is lending support to the Yen this morning.  

Higher than expected Canadian inflation, is helping to lift the March Canadian Dollar. This is likely to be a short-term position evening move. The strengthening U.S. economy along with IMF sales of gold should exert pressure on the Canadian Dollar once this inflation news blows over.

The stronger Dollar and signs that the U.S. Fed are poised to begin removing stimulus and hiking interest rates, is pressuring higher yielding currencies such as the March Australian Dollar and March New Zealand Dollar.  Technically, yesterday’s closing price reversal top was confirmed overnight which is a strong indication that a 2 to 3 day break is likely.


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