Trading is returning to normal today following yesterday’s U.S. bank holiday.  Overnight, the Dollar initially stated to show strength, but that quickly disappeared as demand for higher yielding assets showed no let up in Asia and Europe.  Without any major U.S. economic reports today, look for the trend toward a weaker Dollar to continue.  Earnings surprises could move the markets today.

The December Euro is expected to open higher despite a weaker German consumer confidence number.  Overnight it was reported that the German ZEW Survey fell to 56.0 from 58.8.  This report, which showed the first decline in 4 months, surprised traders which led to initial weakness in the Euro.  Investors ignored the news and the market’s reaction and quickly bought the weakness to turn the market around.  

Recent economic reports suggest the Euro should be breaking but traders continue to push it higher.  Investors are acting as if the economic data is aged and that better times are ahead.  

The trend turned down in the December British Pound overnight when this currency pair broke through 1.5853.  This action also helped form a new swing top at 1.6117.  Additional selling pressure hit the market following the release of a disappointing U.K. inflation data report, but these losses were quickly absorbed by traders who began buying the weakness.  If today’s low at 1.5702 turns out to be a bottom, then look for the start of a retracement to 1.5911 to 1.5960.

Buyers near the last swing bottom at 1.1065 are preventing the December Japanese Yen from changing the trend to down.  The current buying pressure could drive this market up to 1.1214 to 1.1250.  This area needs to hold in order to form a secondary lower top and trigger the start of a new break.  Traders are being cautious in this market at current levels because they feel the Bank of Japan may take action to prevent volatility and a rapid rise in the Yen.

Equity markets are trading slightly better in the premarket.  Traders are anticipating volatility today as earnings season begins to heat up.  Key reports from Johnson and Johnson before the market and Intel after the close should have strong effects on the markets.  Traders are going to want to see increased earnings driven by better revenue.

Investors drove the markets to a new high for the year yesterday on thin volume.  When big traders return to the markets today, they may not want to pay up for stocks.  This could lead to early session weakness.  In addition, the slew of economic reports tomorrow may encourage some positioning evening late in the trading session.  

Treasury futures are expected to open mixed.  The December T-Bonds and T-Notes have felt downside pressure since Fed Chairman Bernanke mentioned higher interest rates and a tighter monetary policy late last week.  Traders are going to have to clear his comments out of their minds in order for these markets to rally.  Otherwise it looks as if his comments have helped put in a short-term top.  The charts indicate the T-Bonds could break all the way back to 118’00 before attracting selling interest.

December Gold posted a new all-time high overnight when the U.S. Dollar weakened.  Continue to expect this market to push higher unless the Dollar mounts a dramatic turnaround.  

December Crude Oil could see more support today based on the stronger Euro and weaker Dollar.  Short-term supply and demand factors are still bearish, but speculative traders are beginning to price in the start of an economic recovery.


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