U.S. equity futures are expected to open flat to lower based on weak pre-market trading. A shift in demand for higher risk assets early this morning is leading some traders to take a little money off the table.
The Dow closed over the psychological 10,000 level yesterday for the first time in a year. What does this mean? Nothing. The market is disconnected from the economy at this time and being driven higher by momentum and money managers chasing stocks. Technically, it appears to be closer to a high than another buying opportunity.
Yesterday, the FOMC minutes indicated that the U.S. was far from hiking interest rates. They also showed that the Fed was a long way from implementing a tight monetary policy or reducing its asset buyback program. Several Fed members even tried to increase its asset purchasing power. This is definitely a sign that raising rates at this time is not a priority. Traders interpreted the FOMC minutes as bearish for the Dollar, erasing all of the gains captured following last week’s hawkish comments from Fed Chairman Bernanke.
This morning, traders will be watching for key earnings reports from Goldman Sachs and Citigroup to set the tone in the Forex markets. Firmer equity markets and lower risk aversion have been the catalysts behind the recent weakness in the Dollar.
Weekly initial claims, consumer inflation news and the Philadelphia Fed numbers will also be watched carefully for any signs of economic recovery.
The December British Pound is trading sharply higher overnight, fueled by bullish comments from a Bank of England official. The BoE’s Paul Fisher said that the central bank’s quantitative easing program was working.
The December Japanese Yen is posting a loss this morning, triggered by a combination of news and technical factors. The Japanese Yen started to feel pressure after Japanese Finance Minister Fujii denied saying a strong Yen was good for the economy. He clarified his position by stating that “countries must not compete in devaluing their currencies.”
The overnight rally in the December Euro is fading. News that Euro Zone inflation fell in September is leading traders to reduce bets that the ECB will hike interest rates at its next meeting on November 5th. Watch for possible market moving comments from Trichet as he addresses a group of Euro Zone finance ministers. Trichet may express concern about the rapid rise in the Euro.
After trading up to a 15-month high overnight, the December Canadian Dollar is in the midst of a massive reversal. The chart pattern suggests a possible daily closing price reversal top may be forming. Concerns from Prime Minister Harper about the rapid rise in the currency, and its possible negative effects on the economy have made traders nervous about buying at current levels.
Treasury futures are coming back after several days of weakness. Yesterday’s FOMC minutes should be the catalyst that drives the December Treasury Bonds and December Treasury Notes higher. Weaker economic news and a break in the equity markets could help these markets rally sharply higher today.
December Gold posted a daily closing price reversal top yesterday and confirmed it overnight. The charts indicate this market has a good chance of breaking all the way back to 1028.80 over the next 2 to 3 days. The divergence between gold and the Dollar is a strong indication that a major top may be forming, but this won’t be known unless the market makes a reversal on the weekly chart.
December Crude Oil could trade weaker today if the Dollar rallies and equities break. Although recent reports show an increase in demand over the long-run as the global economy recovers, traders are still watching the short-term supply and demand numbers. Today’s crude oil inventories report will set the tone for today.
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